Many of us focus on taxes twice a year, in December and April. Conducting a mid-year assessment will give you time to make necessary changes, implement strategies and prepare for significant tax events. Here is a list of items to consider for mid-year planning:
Did you file for an extension? If you filed an extension back in April, now is the time to complete your return. Yes, you have until Oct. 15 to complete your return but waiting until the last minute could result in missed deductions or mistakes that could require that you amend the return.
Assess any life changes: Did you get married or divorced? Do you have a new child or one starting college? These can have an impact on your tax situation. If a change has already happened or you anticipate a change before year-end, now is a good time to review the tax implications.
Review your withholdings: If you received a big refund last year and your tax picture looks the same in 2014, then consider adjusting your withholdings. Some people view a tax refund as a windfall or a forced savings account. This may not be a sound strategy as this gives the IRS control of your money throughout the year. The ideal scenario is that you pay just enough to cover your tax liability. Make the change and put the money in your account and capture the earnings. You can change your withholding by submitting a new W-4 to your HR department.
Track your deductible expenses: The IRS allows you to deduct certain things including charitable donations, educational expenses, mortgage interest and property tax. It is best to keep accurate records in case you are ever audited by the IRS. Review expenses made year-to-date so that you can plan for the second-half of the year.
Give to charity: Most people wait until end-of-year to make charitable donations. Charities will accept money or unwanted household items at any time. Clean out the basement, donate a vehicle or write a check to your favorite organization. They can use your help whether it’s July or December.
Review portfolio gains: Review your portfolio for capital gains to determine the amount of exposure. Planning now will give you time to strategize on ways to minimize the tax liability and allocate necessary resources to pay it.
Maximize your retirement contributions: Contributing to a tax-deferred savings plan is an effective to way minimize your taxable income. If your employer offers a 401(k), you can contribute up to $18,000 or up to $23,000 if you are over age 50 in 2015. The contribution limit is capped at $53,000.
If you employer does not offer a retirement plan or you are not eligible to participate consider contributing to a traditional IRA. Contributions are generally tax-deducible but may be limited based on your filing status and income. Contributions are limited to $5,500 or $6,500 if you are 50 or older.
Favorable tax results begin with planning; starting now gives you ample time to get organized and avoid unexpected surprises at year-end.
James O’Brien is a Certified Financial Planner and managing partner at Gill Capital Partners, an independent Colorado-based financial services firm.
