Many of us know the discomfort of hastily gathering the documents needed for doing our tax returns. It's a huge chore, often aggravating and so time consuming! Then there's the process of going over your 'numbers' - we're often left thinking 'Why didn't I think ahead and manage this better?' Now is the time to think about what you might need to do to prepare for next April, when that uncomfortable time will roll around once again. Here's a list of midyear tax moves that might save you some time, frustration, and maybe even some money!
- File your 2011 tax return Did you file for an extension? It might give you until Oct. 15 to file, but you don't have to wait that long. The IRS will gladly take your completed paperwork early. And remember - Free File is still available.
- Adjust your withholding Did you get a big refund this year? Or did you owe the IRS a lot? Either way, adjust your payroll withholding. The paycheck calculators at PaycheckCity can help you determine the best scenario for your W-4. The goal is to get the amount of income taxes taken out of your paychecks as close as possible to your eventual tax bill.
- Evaluate your estimated tax payments You just sent in your second estimated tax amount in June. Look at what you've paid and whether the calculations you made in January for these four extra tax payments are appropriate. If not, you can make adjustments for the upcoming September and January 2013.
- Investigate your investments It never hurts to give your investments a regular once over. If you see some assets you want to sell for a profit now, do so. Similarly, if you see some dogs you want to let out of your portfolio, do it so they'll no longer drag down your overall net worth. That way you'll lock in the capital gains at this year's 15 percent top rate and bank some losses you can use to offset that income.
- Donate to charity Don't wait till the end of the year to donate to your favorite nonprofit organization, do it now. Summer typically is the slow fund raising time of year for many charities. Your charity will be thrilled to get your money or unwanted household items now. And if you itemize, you've got an entry on the charities section of Schedule A. And don't forget to get a receipt!
- Give away some of your estate The estate value exclusion is scheduled to drop, to $1 million with a tax of 55 percent on assets left that exceed that amount, on Jan. 1, 2013. The unified gift tax amount also will fall. Right now, though, the estate tax/gift tax is $5.12 million. And you can hand out gifts of $13,000 toward that limit to as many people as you want without any gift tax worries for you or the gift recipients.
- Contribute to your retirement plan Remember to take care of yourself! If possible, put the maximum into your IRA, Roth or traditional. Also, remember your company's 401(k) plan. And look into whether converting a traditional IRA to a Roth is a good move for you. The sooner you put money into your retirement plans, the longer it has to grow to the amount that will ensure the type of post-work lifestyle you want.
- Go house hunting If you think you might want to purchase a house sometime in the not-too-distant future, then now is a great time to look into homeownership. Mortgage rates are at historic lows and since the housing market took such a hit, homes in most parts of the country are quite affordable. And there are still lots of tax breaks associated with owning a residence
- Go greener Maybe it's time to make some major energy conservation moves at your house. Ambitious energy upgrades, such as installing solar energy, wind power or geothermal systems, could qualify for a tax credit equal to 30 percent of the residential energy improvement costs, including installation!
- Bunch your deductible expenses Basically, 'bunching' is a plan whereby you consolidate eligible expenses into one tax year where they will count the most. It helps you clear the percentage thresholds that tend to limit medical and miscellaneous itemized deductions. By looking now instead of frantically at the end of the year at what you expect or can spend in those areas, you'll be in better shape to claim them and trim your tax bill
- Prepare for the worst Disasters can happen any time, so be as prepared as possible. The IRS has some helpful suggestions for how to protect yourself in the event of a disaster. And if you're a victim of a major natural disaster, you might at least be able to get some help when you file your taxes.
- Get organized Is your 2010 tax-filing material still in an unsorted stack? Straighten it out now. Your tax organization system doesn't have to be elaborate. An accordion file works wonders for many folks, including me! If you prefer to set up folders in a file cabinet, do that. Whatever organization system works for you is fine. Just pick one that you'll stick with and start putting business expense receipts, medical bills, charitable deduction substantiation docs and the like into it now.
These free resources should not be taken as tax or legal advice. Content provided is intended as general information. Tax regulations and laws change and the impact of laws can vary. Consult a tax advisor, CPA or lawyer for guidance on your specific situation.