It’s July! While the year may feel like it’s just getting started, for tax purposes, we’re halfway through. This is a great time to take a proactive approach to your finances and avoid any potential tax headaches later. Let’s break down some key mid-year tax steps you can take to ensure a smooth tax season come April.
Step 1: Take Stock of Your Income and Expenses
By July, you’ve likely received most of your income for the first half of the year. This is the perfect time to gather your pay stubs, 1099s, and any other income statements. Additionally, collect records of your business expenses if you’re self-employed.
Why it matters: Having a clear picture of your income and expenses allows you to estimate your tax liability for the year. This will help you determine if you need to adjust your tax withholding or make estimated tax payments to avoid penalties come filing time.
Action tip: Schedule some time this month to go through your financial records. Consider using budgeting apps or spreadsheets to keep track of your income and expenses throughout the year.
Step 2: Review Your Estimated Tax Payments (For Self-Employed Individuals)
If you’re self-employed or have other sources of income not subject to withholding, you’re responsible for making estimated tax payments throughout the year. These payments are essentially prepayments on your tax liability for the year.
Why it matters: Underpaying your estimated taxes can result in penalties. By reviewing your income and expenses in July, you can ensure your estimated tax payments are on track and adjust them if needed.
Action tip: Use the IRS Form 1040-ES to calculate your estimated tax liability for the year. This will help you determine if you need to make any additional estimated tax payments by the upcoming deadlines (typically September 15th and January 15th of the following year).
Step 3: Report Tips to Your Employer (For Employees Who Receive Tips)
If you’re an employee who receives tips, you may have additional tax reporting requirements. Employees who receive more than $20 in tips in a month are required to report those tips to their employer.
Why it matters: Reporting your tips to your employer ensures that the proper amount of taxes is withheld from your paycheck. This will help you avoid owing additional taxes when you file your return.
Action tip: If you receive tips, be sure to report them to your employer on Form 4070 by July 10th for tips earned in June. Keep copies of your tip reports for your records.
Beyond the Basics: Additional Mid-Year Tax Tips
Weekend and Holiday Deadlines: Don’t worry if a tax deadline falls on a weekend or holiday. The IRS automatically extends these deadlines to the following business day.
Disaster Relief: If you live in an area designated as a disaster area by the government, you may be eligible for tax relief, including extended filing deadlines. Check the Federal Emergency Management Agency (FEMA) website and the IRS website for more information.
Remember, It’s All About Planning
By taking these proactive steps in July, you can set yourself up for a smooth tax season. Remember, the earlier you address potential tax issues, the less likely you are to encounter surprises down the road.
Bonus Tip: Consider Consulting a Tax Professional
While this article provides a general overview of mid-year tax considerations, your unique financial situation may require additional guidance. Consider consulting with a qualified tax professional to ensure you’re on the right track and taking advantage of all available tax benefits.
