Avoid the Christmas Rush: Mid-Year Tax Planning

Summertime is commonly a time to relax and take a break from the pressure of everyday life. However, a little planning now while things are otherwise slow can go a long way towards simplifying your life at the end of the year when tax and financial planning are frequently undertaken.

Mid-year tax planning can give you more time to map out and execute a smart plan that can save you time and money later. It can also be a good time to discuss your situation and get planning advice from your tax or investment professional while they have more time available.

Here are a few taxing items to consider:

Changes in your life – Did you get married, divorced or gain or lose a dependent? Did you or your spouse get a new or additional job? Any of these can affect your tax and may require an adjustment in your withholding or estimates to keep you from being under- (or over-) withheld come tax time. It may also offer new deduction opportunities (or drawbacks) for you.

Are you taking full advantage of your retirement plan options? At a minimum everyone should contribute enough to get their employer’s full matching contribution. Ideally you should strive to increase your contribution every year until you get to the maximum contribution limit; for a standard 401(k) or 403(b) plan that is currently $18,000 + $6000 more if you are age 50 or more. If your income is below the phaseout for a Roth ($183,000 to $193,000 for married people) consider a contribution here as well: $5,500 + $1,000 more if you are age 50 or older. Make sure your beneficiary designations are correct.

Consider your itemized deductions. Too often people only look at these after the year is over. At that point there’s no planning left to be done. Considering your medical or miscellaneous deductions now can allow you to shift some costs into the current or next year to maximize the potential deduction. Consider making donations to charity now rather than waiting until December.

You can plan your charitable giving budget and allocate the money to the causes you like the best. Get a batch of unused clothing and household items together while you have time to document the details of what you are donating and their value rather than the “3 bags of clothing” descriptions we see all too often. Vague listings like this aren’t likely to get you full value for your donation and are difficult to support in an audit. (See our prior posts on charitable deductions and documentation)

Review your insurance coverage. Auto, life, home and health; any changes in your life can require updates to your policies. Shop for competitive quotes every year or two, before your policies are due to renew to be sure you are getting the best value. Make sure the limits are consistent with your current situation and your beneficiaries are also current.

Review your investments. Check on your taxable gain or loss to date and review whether you have any clunkers that it might be time to sell. Too often this is only done at the end of December, and as a result, many tax planning opportunities are lost. A good review plan would include considering whether your investment goals have changed and is your portfolio consistent with your current goals and needs. Based on this, you might consider asset allocation, reviewing individual holdings for performance and to see whether they still make sense to your portfolio, and evaluating whether you have sufficient liquidity available to meet any expected needs over the next 6 months to a year.

A little planning now could save you some money later as well as time trying to manage this at the end of the year when it becomes a crisis.

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