While you may not be thinking about tax time as you enjoy summer fun, there are some tax moves that cannot wait until the end of the year. If you don't want to get hit with penalties or have to come up with a lot of cash when tax season rolls around, you should consider taking a few simple steps now during mid-year to stay on top of your tax situation.
A Maryland tax attorney can provide you with personalized advice on the tax moves you should be making based on your financial affairs, but four of the moves that you may need to make include:
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Paying Estimated Tax Payments
If the bulk of your income – or all of your income-- comes from wages, your employer should be withholding taxes and sending some of your money to the IRS. But, if you're self-employed or earn a lot of retirement income (or other non-wage income) you'll need to make estimated payments to comply with the IRS' pay-as-you-go rules.
Two estimated payments should have already been made: April 15 and June 15. You'll need to make a third on September 15 and a fourth on January 15. If you haven't already made your April or June payments, act now to send a check to the IRS. If you've already paid those estimates, start setting aside cash for the September deadline.
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Adjusting Withholdings
Your employer is withholding a part of your paycheck based on information you provided on your W-4 when you got hired. Around 97 million taxpayers received a refund this year, which means most workers are having their employers withhold too much money. While it's nice to get a refund, you're often better off to have the extra money as you earn it rather than giving the IRS an interest free loan and waiting to get the cash back at the end of the year.
Adjust your withholding now if you're expecting a large refund so you can start using your money now. Alternatively, if you've experienced a change in your financial situation- such as a dependent leaving the nest- and you suspect your employer could be withholding too little from your paycheck, this is also a problem that needs to be corrected. This may be a more urgent issue if you don't want to be left with a huge tax bill at the end of the year.
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Begin Spending Your Flexible Spending Account (FSA)
A FSA gives you the chance to pay for qualifying medical expenditures with pre-tax dollars. You get to choose how much to put into your FSA, but if you don't spend the money in the account, it doesn't carry over to next year: you lose it! You don't want your hard-earned funds to be forfeited, so start making sure you've found ways to spend the cash in your FSA.
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Open (and Contribute to) a Retirement Account That Provides Tax Breaks
If you have a 401(k) at work, talk with human resources about contributing to it if you aren't already. You should not give up the chance to have the government subsidize your retirement through tax breaks, so there is no reason not to invest in accounts that provide tax deductions for retirement savings. If you don't have a 401(k) at work, you can open an IRA instead, which also allows you to make pre-tax contributions up to maximum annual limits.
A tax attorney can explain tax breaks for retirement accounts and other mid-year moves to make. Contact US International Tax Advisors for help today so you can take the right steps now to be more prepared for later.
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