Now that we have entered the second half of the year, there is no better time to get a handle on your taxes to reduce the risk of unexpected surprises for next year’s tax season. Practicing a number of effective mid-year tax planning strategies can not only help you save income taxes, but can also increase your retirement fund, help you manage cash flows, and more. No matter if you typically receive a tax refund or a bill, taking advantage of the extra time in between seasons to review your taxes will help taxpayers become better organized, and provide peace of mind that everything is on track for next year.
- Review tax withholdings
Typically, whenever you start a new job there is a variety of paperwork to complete – including a Form-W4 that covers how much your employer withholds from your paychecks for federal taxes. It’s important to re-visit those withholdings before each tax season arrives to ensure everything is still up to date, especially after major life changes such as marriage, having children or obtaining a second form of income. The IRS provides a tax withholding estimator online tool to help taxpayers see if they are on track, providing ample time to adjust tax withholdings if necessary.
- Increase 401K contributions
For taxpayers that may have a little more room in their budget, now is also the perfect time to consider reviewing and making changes to monthly 401K contributions. Boosting your pre-tax retirement savings is a great way to reduce your total adjusted gross income. As of 2022, you are able to save $20,500 into your 401K, with an extra $6,500 if you are 50 years or older. No matter what your personal saving goals may be, there is no doubt that they will be easier to obtain by increasing your deferrals now.
- Weigh Roth IRA conversions
As many are aware, the stock market has been significantly down since the beginning of this year. However, some may have a chance to use this to their advantage by saving on Roth individual retirement account conversions. After making non-deductible contributions to pre-tax IRA, you may then convert those funds to a Roth IRA account – ultimately getting ahead on tax-free growth with the trade paying off upfront levies on contributions and earnings.
- Consider tax-loss harvesting
Using losses to offset profits is known as tax-loss harvesting, which is considered another good move for taxpayers to make while the stock market is down. This is achieved by selling declining assets from a brokerage account and using those losses to reduce other gains. Once the losses begin to exceed profits, you are then able to subtract $3,000 per year from regular income.
When it comes to taxes, we believe that there is no better time than right now to make sure you are doing everything possible to limit what you owe for the upcoming tax season. By practicing a few proactive steps throughout the year, businesses and individuals can be more confident that they are ready to go once tax season approaches. We understand that tax season can be an overwhelming time for many, and that it often has a way of sneaking up on you. At Brock CPA, our team of certified tax and accounting professionals are here to ensure our clients a stress-free tax season. If you are ready to get a jumpstart on your taxes, we encourage you to contact our office by calling 904-330-0268 or emailing firstname.lastname@example.org.