NASA Goddard Space Flight Center
Image: Reto Stöckli | Enhancements: Robert Simmon | GIF conversion: Jahobr | Public domain/Wikimedia Commons
No, it is not your imagination. August arrived on an accelerated timetable, and Aug. 5 will be one of the shortest days on record.
Okay, the difference in the Earth’s increased spin rate tomorrow, like it was on July 10 and 22, will be only a few milliseconds. But small changes can have dramatic effects when it comes to scientific and tax matters.
So, before we literally lose more time, here are six tax moves to consider this August.
Plan your health account expenditures. Aside from that sunburn earlier this summer, you’ve been in pretty good health. That’s great. But it also means that the dollars in your flexible spending arrangement (or account as it’s popularly called, and referred to by its acronym FSA) have been accumulating.
Those pre-tax FSA funds can be used to pay qualifying medical, dental, and vision expenses, as well as other myriad health-related products and services. The key is using them.
Some companies that offer this workplace-provided benefit allow employees a grace period until mid-March to spend annual FSA money. Others let FSA owners roll a portion of the account over into the next benefits year.
But most FSAs are the use-or-lose type. If you don’t spend the savings by the end of the benefits year, which is Dec. 31 for most companies, the excess funds go back to the company.
To ensure that doesn’t happen to your FSA, check your balance now. Then start thinking now about how you might use the remaining money this month and the rest of the year so that you don’t lose it.
Evaluate, and add to, your retirement accounts: This summer so far has been great. What’s even greater is being able to spend every day this way when you retire. That can happen if you save for your post-work year.
If you have a 401(k) plan at work, consider upping your contributions. Most employers allow workers to change their contributions at any time. But check with your benefits office to make sure. If you can add more, start now. Tax law says you can make up to $23,500 in tax deferred contributions for 2025. If you're older, you're eligible for an additional $7,500 in catch-up contributions. Yeah, I know. Most of us won’t get near that level. But putting in as much as you can will mean a more comfortable retirement.
The same max out advice applies to IRAs, whether you have a traditional IRA where savings grow tax deferred or a Roth version where you put in taxed dollars now so you can take them and the investment’s growth amounts out tax free in retirement.
For 2025, the IRA contribution maximum for both types is $7,000. You get another $1,000 catch-up IRA contribution if you’re age 50 or older.
If you’re self-employed, look into solo 401(k)s or SEP IRAs. These retirement plans come with higher contribution limits and more control.
Finally, if you have all your IRA money in a traditional account, consider converting at least some of it to a Roth. That will give you more financial flexibility in retirement. But note that you’ll owe income tax on the converted traditional IRA amounts, so don’t make this move without running the numbers and talking with a tax and financial adviser.
Save for college. Classes soon will be back in session, so August is the perfect time for some financial homework when it comes to paying educational expenses.
Sure, Trump accounts (and their special seed money for some of the youngest kiddos) will be available next year. But if your children are interested in one day attending college, the existing college savings account option known as 529 plans is generally the better choice. These state-sponsored accounts have higher contribution limits and favorable tax treatment, at both the federal and, in many cases, state levels.
Adjust, if necessary, your paycheck withholding. You might find the money to go into retirement or college accounts if you tweak your paycheck withholding. This definitely is a move to make, as I’ve said in prior monthly tax move posts, if you owed a big tax bill or got a huge refund. The goal is to get your withholding as close as possible to your eventual tax liability.
If you underwithheld and owe a lot when you file your annual return, then you’re faced with coming up with the cash in a lump sum payment. Or you’ll have to set up a payment plan that will cost you interest payments. And you could face underwithholding penalties.
If you get a big refund, that’s better. But only slightly. You’ve given Uncle Sam control of your dollars for months. And he pays no interest for that privilege.
Even if your most recent tax filing and tax liability were on par, life events, such as a change in marital status (saying "I do" or "I'm outta here") or having a child can all affect taxes. If that’s happened this year, you definitely need to adjust your paycheck withholding. The IRS' online Tax Withholding Estimator can help you assess those changes, as well as possible credits, adjustments and deductions they offer, and determine whether you need to give your employer a new Form W-4.
The earlier you make the withholding changes, the less effect they'll have on your paychecks. That's particularly important if you must increase the amount taken out of your pay. Making the change in early in August will spread the larger amount taken from your pay over periods for the last five months of the year.
Check on your summer earnings tax situation. You had time this summer to make some extra cash from your hobby or a side hustle. That added income is great, for you and the Internal Revenue Service.
These side hustles will affect your final tax bill, even if most of your adjusted gross income comes through a salary subject to withholding, because all these seasonal earnings are taxable income.
If your summer earnings were/are substantial, you should treat the activity that created them as another job, not a summer lark. That could save you some tax dollars. When you operate your money-making endeavor as a business, not merely a hobby, you might be able to deduct some of those income producing efforts as business expenses.
This work add-on also means some additional tax payment steps.
First, make sure you have all your earnings records and associated expenses in order. Good record keeping, as in all tax matters, is crucial.
As for the tax on these earnings, you can adjust your main salary paying job’s withholding (see August move #x above) to account for the tax you’ll owe on the summer self-employment income.
Or you can make estimated tax payments. The third quarter’s estimated tax deadline is Sept. 15.
Work on your tax filing extension. I’m glad you’ve spent most of the summer having fun instead of thinking about your 2024 tax return filing deadline that you pushed into the future. You might want to make that future now.
If you haven’t started your Form 1040 at all, reviewing these tax statements you need to file your 2024 tax return could help jump start the process. If you started then stopped, you might want to review the monthly tax tips (starting with January’s list, which has links to the following months) for suggestions and reminders.
More August tax tasks: If you’re on a late summer tax task roll and want more, check out the August Tax Moves in their regular place over in the ol' blog's right column.
As always, they are just below the August Tax Moves header that's under the clock counting down the days until the aforementioned Oct. 15 filing extension deadline.
I know you just want to finish out a relaxing summer, but if you also pay attention to some tax tasks now, you can chill not only during the rest of these last lazy, hazy days, but also at tax filing time next year.
And, in closing, to remind us that every day is a new day across the universe, below is the Earthrise seen from Apollo 8, the first manned mission to the moon, as it entered lunar orbit on Christmas Eve, Dec. 24, 1968.
That evening, the astronauts-Commander Frank Borman, Command Module Pilot Jim Lovell, and Lunar Module Pilot William Anders-held a live broadcast from lunar orbit, in which they showed pictures of the Earth and moon as seen from their spacecraft.
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