Take These Easy Steps Now to Avoid Tax Headaches Later
Most of the time we think about taxes only at the end of the year as we prepare to file last year’s taxes. By taking some time now, you can complete some of those tax to-do list action items without the stress.
Taxpayers have until April 15 of the following year to contribute to their Individual Retirement Arrangements, but if you have the financial stability to contribute now, it might make financial sense to do so. Not only do you avoid the rush, but your investments have more time to compound and grow.
Flex Spending Accounts
Flex spending accounts, offered by employers, allow employees to use pretax dollars to pay for eligible health care and dependent care expenses. However, any money left in these accounts at the end of the benefit period is forfeited (generally March 15 of the following year for a health FSA but may vary). This can encourage employees with positive FSA balances near the the end of the benefit period to schedule medical visits and bunch together expenses.
Instead of rushing to see the doctor at the end of the benefit period, consider making an appointment in the late summer or early fall. A medical checkup now will also allow you to better understand what health expenses you might face in the coming year and better plan for what amount you should have deducted for your FSA in the coming year.
Withholding and Life Events
If you find yourself always facing a balance due or always getting a refund when you file your taxes, you might want to change your withholding. If you didn’t make the changes immediately after you filed your return, take the time to make the changes now.
If you had a life event in the first half of the year, (birth, death, marriage, etc.) take some time in the second half to adjust your withholding so that you either do not have a large tax bill or a large tax refund. The IRS has an online calculator to help determine what your W-4 should show. If you’ve had a complicated January-June, you might want to meet with someone knowledgeable about taxes before making withholding changes.
To change your withholding allowances, submit a W-4 to your employer.
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