5 easy tax tasks to take care of in July
Monday, July 07, 2014
Did you have a great three-day Fourth of July weekend? Fantastic!
Now it's time to focus on taxes. Really.
Don't act so surprised. Yes, it is summer. But you did click over here to the ol' tax blog.
Photo courtesy of Camp Laurel, Maine
And I know you know that taxes continue well beyond the traditional filing season.
So don't let more days slip by without making some midyear tax moves that could help keep you on the Internal Revenue Service's good side an help reduce your upcoming 2014 tax bill.
Here are five easy tax tasks to take care of this month.
1. File your 2013 tax return.
I know a lot of y'all are just like me, a tax procrastinator. That's not necessarily bad. It's better to get an extension to file instead of making a lot of mistakes on your Form 1040 as you rush to meet the April 15 deadline. But just because you (and I!) now have until Oct. 15 to file doesn't mean we need to take the full six months. So take care of this now, so that you don't find yourself facing a frantic filing countdown in a few months.
2. Adjust your payroll withholding.
Did you get a big tax refund this year? Or did you owe Uncle Sam more than you expected. Either situation means that your payroll withholding amount is a bit off. It's easy to do something about that. Just give your payroll administrator a new W-4. You should look into whether you need to adjust your withholding at the start of each year and also any time that your personal or financial situations change. I get it. It's easy to use withholding as forced savings and get a refund every year. But that's your money that you could have been using throughout the year. Plus, in this case, Uncle Sam doesn't pay any interest.
3. Contribute to your retirement accounts.
Financial planners always advise pay yourself first. That includes not only putting aside a little each month to an account for emergencies (cars always seem to need repairs at the worst possible times!), but also toward your eventual retirement. Yes, it will arrive someday. And the sooner you start socking away cash -- maybe some of that cash you're getting since you adjusted your withholding -- in your workplace 401(k) plan or a Roth or traditional IRA, the better prepared you'll be to enjoy your post-work years.
4. Donate to charity.
Since you're in the giving mood, consider sharing with those who aren't in as good a place as you. Summer is a slow time for charities when it comes to contributions, but the organizations must meet the needs of those who depend on their services year round. Your midyear donation will be very welcome. And it's just as tax deductible as long as you follow the tax code's giving rules.
5. Examine your investments.
The stock market is on a tear, so it's a good time to look at how your investments have been doing. If you're like me, you're in a low enough tax bracket so that any investment income -- qualified dividends, capital gains distributions or capital gains if you make a profit on an asset's sale -- will be taxed at a maximum 15 percent rate. Some folks won't face any capital gains taxes at all.
Now might be a good time to sell a stock or fund or two, just in case the market decides it wants to crash correct itself in the near future. Selling when your holdings are at their high points, known in tax-speak as harvesting capital gains, also might be worthwhile if you want to reset your basis so that future sales won't cost you as much in taxes.
If you happen to make a bit more, good for you. But that also means you probably have some additional tax considerations of the wealthy.
In either case, never make investment decisions based solely or even predominantly on taxes. Talk with your tax and/or financial adviser(s) about what moves are best, tax- and investment-wise, for your personal circumstances.
But wait, there's more: There, that's not too much tax work for the middle of the year. You'll be back on the beach or golf course or whatever is your leisure preference in no time.
If, however, you're feeling more obsessive industrious when it comes to your taxes, check out the ol' blog's right column. That's where you'll find even more July Tax Moves under the heading of the same name.
Enjoy the tax savings they might provide. And definitely enjoy the rest of your summer!
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