It’s already halfway through 2024! While summer is a time for relaxation and fun, it’s also a great opportunity to take a proactive approach to your finances. This includes a mid-year tax checkup, a simple but crucial step to avoid surprises come tax filing season.
This guide will walk you through key tax-related tasks for July and beyond, ensuring you’re on track and reducing the risk of underpayment penalties.
Why a Mid-Year Tax Checkup?
Think of a mid-year tax checkup as a pit stop on your financial journey. It’s a chance to assess your current tax situation and make adjustments if needed. This proactive approach can save you from scrambling later when tax filing deadlines loom. Here are some key benefits:
- Avoid Underpayment Penalties: By reviewing your income and expenses to date, you can ensure your estimated tax payments or withholding are sufficient. This helps prevent underpayment penalties that can add unnecessary stress to your tax filing process.
- Identify Opportunities for Savings: Taking a closer look at your income and deductions might uncover tax breaks you weren’t aware of. This could lead to a pleasant surprise at tax time!
- Peace of Mind: Knowing you’ve taken control of your tax situation allows you to enjoy the rest of the year without worrying about potential tax liabilities.
Step 1: Gather Your Documents
Before diving in, gather your essential tax documents: paystubs, W-2s (if you’ve received them), receipts for deductible expenses, and any other relevant tax-related paperwork. Having everything organized upfront will make the process smoother.
Step 2: Estimate Your Taxable Income
Now, let’s get down to business. Here’s how to estimate your taxable income for 2024:
- Review your paystubs: Look at your year-to-date income from your employer(s).
- Add other income sources: Include any additional income you’ve received, such as interest, dividends, self-employment income, or investment gains.
- Subtract deductions: Review your potential deductions, like charitable contributions, mortgage interest, or student loan interest payments.
Step 3: Review Withholding and Estimated Payments
- Employees: Check your W-2 or paystubs to see how much federal income tax your employer has withheld to date.
- Self-employed individuals: You are required to make estimated tax payments throughout the year. Compare your estimated payments to your projected tax liability for 2024.
Step 4: Adjust Withholding or Estimated Payments (if necessary)
Based on your income and estimated deductions, you might need to adjust your withholding or estimated tax payments. Here’s what to do:
- Employees: If your current withholding is insufficient, consider increasing the amount withheld from your paycheck. Talk to your employer’s payroll department to make this change.
- Self-employed individuals: If your estimated payments are too low, you’ll need to make additional payments to avoid underpayment penalties. The IRS website provides a helpful tool to calculate your estimated taxes.
Additional Tax Tips for July
Tip #1: Report Tips to Your Employer (due July 10th)
If you are an employee who receives tips, and your total tips for June exceed $20, you are required to report them to your employer by July 10th. Use IRS Form 4070 to do this. Reporting tips ensures that FICA taxes and income tax withholding are accurately calculated for you.
Tip #2: Remember Due Date Extensions!
Tax deadlines can be stressful, but don’t worry – there are some lifelines!
- Weekends and Holidays: If a tax deadline falls on a weekend or legal holiday, it’s automatically extended to the next business day that’s not a holiday.
- Disaster Relief: If you live in a federally designated disaster area, the IRS may extend tax filing and payment deadlines. Check the FEMA website and IRS website for updates.
Taking control of your taxes with a mid-year checkup is a smart and proactive financial move. By following these steps and keeping these tips in mind, you’ll be well on your way to a smooth and stress-free tax filing experience come next year!
