Help Maximize Your Tax Savings: Essential Mid-Year Check-Up Strategies

Did you know that according to the Internal Revenue Service, an average of 150 million individual tax returns are filed annually in the United States? (1) With such a staggering number, it’s no wonder that many individuals overlook the importance of mid-year tax check-ups. But what if a simple review could potentially save you thousands of dollars? How might your financial future change with a proactive approach to tax planning? 

The Importance of Mid-Year Tax Planning 

Mid-year tax planning is not just a practice; it’s a necessity in today’s complex financial world. From June to August, you have a clearer picture of your income, expenses, and potential tax liabilities for the year. This halfway point provides an ideal opportunity to make adjustments that can significantly impact your tax outcome. 

A similar fact regarding tax overpayment is that taxpayers often miss out on deductions or credits they are entitled to, resulting in higher reported taxable income and overpayments. Common causes of tax overpayment include incorrect withholdings, miscalculated estimated payments, and unclaimed deductions or credits. Could you be one of them? A mid-year check-up can help identify these opportunities and ensure you’re not leaving money on the table. 

Key Considerations for Effective Mid-Year Tax Check-Ups 

1. Review Your Income and Withholdings 

Start by examining your year-to-date income and comparing it to your projections. Have there been any significant changes? If so, you may need to adjust your withholdings. The IRS provides a withholding calculator that can help you determine if you’re on track or if adjustments are necessary. 

2. Maximize Retirement Contributions 

Contributing to retirement accounts like 401(k)s and IRAs can lower your taxable income. As of 2024, the contribution limit for 401(k) plans is $23,000 for those under 50 and $30,500 for those 50 and older. Are you on track to maximize these contributions? (2) 

3. Harvest Tax Losses 

If you have investments that have declined in value, consider tax-loss harvesting. This strategy involves selling underperforming investments to offset capital gains. However, be aware of the wash-sale rule, which prohibits repurchasing the same or substantially identical security within 30 days.

4. Review Estimated Tax Payments 

For those with self-employment income or significant investment earnings, ensuring your estimated tax payments are accurate is crucial. The IRS provides guidelines and forms for calculating and paying estimated taxes. 

5. Consider Charitable Giving Strategies 

Charitable contributions can provide tax benefits while supporting causes you care about. Consider bunching donations or using donor-advised funds to maximize deductions. The Taxpayer Certainty and Disaster Tax Relief Act of 2020 extended certain charitable giving incentives through 2024. 

Tools and Resources for Tax Planning 

Several tools can assist in your mid-year tax planning efforts: 

• Tax preparation software: Various programs offer year-round tax planning features. 
• IRS withholding calculator: This free tool helps you determine the right amount of tax to withhold from your paycheck. 
• Financial planning apps: Apps like Mint and Personal Capital can help track income, expenses, and investments, providing valuable data for tax planning. 

Recent Tax Law Updates 

Staying informed about tax law changes is crucial for effective planning. Some recent updates to consider: 

• The standard deduction for 2024 has increased to $14,600 for single filers and $29,200 for married couples filing jointly (IRS, “IRS provides tax inflation adjustments for tax year 2024”) (3). 
• The Child Tax Credit remains at $2,000 per qualifying child for the 2024 tax year (IRS, “Child Tax Credit”). 
• The annual gift tax exclusion has increased to $18,000 for 2024 (IRS, “What’s New – Estate and Gift Tax”)(4). 

Your Next Move in Tax Planning 

As we’ve explored, mid-year tax check-ups are a crucial component of sound financial planning. By reviewing your income, maximizing deductions, and staying informed about tax law changes, you can potentially save significant amounts on your tax bill. But beyond the numbers, have you considered how a proactive approach to tax planning might impact your overall financial well-being? 

Remember, every financial situation is unique. While this information provides a solid foundation, consulting with a qualified financial professional can make all the difference. Why not take the next step in your financial journey? Consider scheduling a complimentary meeting to discuss your specific tax planning needs and explore strategies tailored to your individual circumstances. 

Sources 

(1) “2024 Tax Brackets.” Tax Foundation, taxfoundation.org/data/all/federal/2024-tax-brackets/. Accessed 5 Aug. 2024. 

(2) “401(k) Contribution Limits for 2024.” Fidelity, www.fidelity.com/learning-center/smart-money/401k-contribution-limits. Accessed 5 Aug. 2024. 

(3) “IRS Provides Tax Inflation Adjustments for Tax Year 2024.” Internal Revenue Service, www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2024. Accessed 5 Aug. 2024. 

(4) “Latest Federal Income Tax Data, 2024 Update.” Tax Foundation, taxfoundation.org/data/all/federal/latest-federal-income-tax-data-2024/. Accessed 5 Aug. 2024. 

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