While most taxpayers expect to receive a refund after filing their taxes, every year many are faced with disappointment when they learn they actually owe taxes to the IRS. Often times this unexpected bill is the result of a life or job change that impacted your income, or simply underestimating the amount you’ll owe. A mid-year tax checkup toward the end of summer can help you avoid surprises at tax time.
Who Should Perform a Tax Checkup
Anyone who wants to avoid being surprised with a potentially large tax bill should perform a tax checkup before the end of summer. It may even help uncover ways you can save throughout the rest of the year. But it is especially important for:
- Self-employed people, including gig workers, freelancers and independent contractors
- People with more than one job, including seasonal and part-time summer jobs
- Anyone who’s experienced major changes in their life, like a recent marriage or a new child
- Anyone earning income not subject to withholding
How to Perform a Tax Checkup
A little tax planning now can help save time and frustration later. Here’s a quick breakdown of the steps you’ll want to take to make sure you are on track to pay the right amount of taxes this year.
Get Organized
Good record-keeping and staying organized can help you a lot come tax season. Log into your online IRS account to review your tax records and payments or create one if you don’t have one yet. If you’re not already collecting and organizing your records and receipts, now’s the time to start. It can help you identify sources of income you didn’t consider earlier in the year, track deductible expenses and make preparing your tax return much easier. Now is also a great time to notify the IRS if your address changed and the Social Security Administration of a legal name change.
Review Your Paycheck & Withholdings
With direct deposit, most people don’t even glance at their paystubs but giving it a good look now is another way to prevent an end of year surprise. Double check that the earnings are correct and that the right amount of tax is being withheld. If you don’t pay in enough throughout the year, you could end with an underpayment penalty in addition to an unexpected tax bill.
Marriage, divorce, having or adopting a child, buying a home, changing jobs and other life events could have an effect on your taxes. Use the IRS’s Tax Withholding Estimator to determine whether you should change your tax withholding and update your withholding with your employer.
Check Your Estimated Tax Payments
Most income is taxable, but it’s not all subject to withholdings. If you receive a substantial amount of self-employment income, gig economy income, interest income, dividends, capital gains, taxable Social Security benefits, or pension and annuity income, you should be making quarterly estimated tax payments. Because these payments are only estimates, it’s important to review them part way through the year. Check to see if the amount you are actually making aligns with what you estimated and make any necessary adjustments to keep yourself on track by logging into your online account.
Review Your Retirement Contributions
Contributing to a retirement plan today could potentially lower your taxable income for the year. The end of summer is a good time to take a look at your contributions and make sure you are on track to meet your savings goals.
Check Your FSA Balance
A flex spending account (FSA) is a benefit account that allows you to put away pre-tax income to pay for eligible medical, dental and vision care expenses as well as other health-related products and services. Typically, you need to use the funds by the end of the year or you risk losing them. Check your remaining balance now and make sure you have a plan to use up your remaining funds.
Consult with a Tax Professional
Consulting with a CPA or other certified tax professional can eliminate any end of year surprises and help you reduce your taxes. Serving individuals and business owners in Gallup, Bloomfield, Grants, Aztec, Kirkland, Farmington and beyond, Arsenault CPA Firm will look into all your options to lower your tax burden while keeping your accounts compliant. We stay up to date on current federal and New Mexico state tax laws, credits and deductions and will guide you through any challenges, leveraging the tax code and proactively planning to minimize your tax liability so you can keep more of your money. Contact us today for a free consultation.