Don't Mess With Taxes

Admit it. You never get anything done this month until after July’s fireworks. That’s especially true this year, with July 4 falling on Friday. Many of us are taking extra-long holiday breaks.

Enjoy your Independence Day celebrations. And be safe, both in traveling to share the holiday with family friends and in the actual igniting of displays.

But once the last mini bombs have burst in the air, leaving only the bottle rocket's red glare, it’s time to get to work. That includes taking a midyear tax checkup.

A review now, with half a tax year left, can help you avoid, or at least avoid being surprised by, a tax bill. Plus, a tax checkup also might help you find ways to make the most of any tax benefits that apply to your filing and financial circumstances.

Here are six to consider.

1. Take your summer job into tax account. Summertime and the living is easy, at least musically. But if you take on added work during the summer, that extra income will affect your taxes.

If it's a summer job to supplement your full-time salary, you can account for the additional earnings by upping your regular paycheck's withholding. If you prefer, you can account for the added income by making estimated tax payments.

Taxes also are a consideration for young people who, instead of using the summer break between classes to chill, opt instead to get a job. Many young first-time workers also will be schooled on how taxes apply to their income. My mini tax primer for students with summer jobs has more on this topic.

2. Review withholding in light of life changes. In addition to added income from a side hustle or seasonal employment, other changes to your personal life also will likely affect your tax situation.

A common one is marriage. Your newly merged lives definitely will mean tax changes.

Other major life events that tend to have tax implications are the birth or adoption of a child, buying house, selling a residence, retiring, and divorce.

Most of these situations mean that, just like with the summer job earnings in July tax move #1, you need to review your paycheck withholding. It’s easy to do. Just fill out a new Form W-4, Employee’s Withholding Allowance Certificate and give it to your payroll administrator. The Internal Revenue Service’s online withholding estimator can help you determine the correct information to put on that form.

Making withholding changes now will spread the changes over these final six months of the year, making the effect on your paycheck less dramatic.

And in some cases, you might need to adjust your estimated tax payments if you’re making them, or start paying these quarterly tax amounts.

3. Increase your retirement contributions. Did your withholding review result in you getting a bit more in each paycheck for the rest of the year? Great! But don’t spend it. Instead, add it to your retirement savings.

If you have a workplace plan, such as a 401(k), simply increase the amount you’re automatically contributing each pay period by the amount your pay increased when you adjusted your withholding. Since those new workplace retirement dollars previously were going to Uncle Sam as taxes, you won’t even miss them.

And if your employer doesn’t offer a workplace retirement plan, put your income bump into an IRA. For most people, a Roth IRA is the best choice, since the withdrawals when you retire aren’t taxed. Some people, however, prefer a traditional IRA because they get a tax deduction for the amount they put into this retirement vehicle.

4. Make your back-to-school shopping list. When you’re young, summer seems to fly by, with classes resuming way too soon. State tax officials know that feeling, and they can help students and parents get ready. They offer back-to-school sales tax holidays every summer, some scheduled for July.

These events, which really aren’t limited to classroom purchases, range from a couple of days to a couple of weeks. During those periods, certain items are exempt from the states’ and usually the local sales taxes.

This year, four states have announced July dates for these consumer-popular events. They are —

• Alabama from July 18 to 20;
• Mississippi from July 11 to 13;
• New Mexico from July 25 to 27; and
• Tennessee from July 25 to 27.

If you live in a state with a sales-tax-free event, make sure you get the most out of it. These tax holiday shopping tips can help.

5. Donate clothing and household goods. To make room for all those new tax-free items you’ll pick up this month, clear out your closets. But instead of spending a nice July day haggling with garage sale shoppers, give your old, but in good shape, apparel to your favorite charity. Consider doing the same with other household items you no longer need and/or want.

Your decluttering donations might even provide you a tax deduction if you itemize. Or, depending on what happens with the big tax bill being debated on Capitol Hill, if you claim the standard deduction.

Regardless of the final legislative decision on deductible donation options, you should need to accurately claim the fair market value of your donated personal property. Also, keep records of your charitable gifts for your records.

6. Get ready for disastrous weather. Early predictions were that the 2025 Atlantic/Gulf of Mexico hurricane season would be extremely active. That still might happen. The season doesn’t really ramp up until late August and September.

But so far we’ve had only two systems — Tropical Storms Andrea and Barry — that weren’t very strong and quickly faded. That’s great. It also means that if you haven’t made hurricane preparations, do so now.

Remember, too, that despite the fizzling of Andrea and Barry, even meteorologically mild storms and hurricanes can cause lots of problems and damage. If a hurricane or any size, or any other major disaster, leaves you with lost or damaged property, you might be able to claim any uninsured losses as a tax deduction.

More July tax moves: As noted at the start of this post, I know most of you just skimmed these tax moves. I’m not offended. Heck, I’m making July 4 plans, too!

But I also know there are some tax obsessives who are looking for even more July tax moves to make. As usual, you can find them over in the ol' blog's right column just below the clock counting down to the October filing extension deadline.

Now I leave you to the rest of your regularly scheduled July summertime activities.

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