As summer sets in, it’s the perfect time for high-net-worth individuals to perform a mid-year tax check-up. Mid-year tax planning can save you from surprises come tax season and ensure you’re on track to maximize your financial situation. Here’s a comprehensive mid-year tax planning checklist to help you stay organized and proactive with your tax strategy.
1. Gather and review available documents.
Last-minute documents gathering is often the reason behind delayed or extended filings, so keeping track of all these items in the summer can help that year-end rush. Here are a few examples of tax documents you should already have at the start of the year:
- Last Year’s Tax Return: Use this as a reference point for this year’s planning.
- Last Year’s Investment Statements: Include 401(k), IRA, and brokerage account statements.
- Real Estate Documents: Mortgage interest statements and property tax bills.
Naturally, many of the documents you’ll need will come in after January; however, you will also still be able to start collecting important documents mid-year. Tax planning can help clarify which documents you’ll need, but here are a few examples of items you’ll be able to start collecting in the summer:
- Business Income and Expenses: If you own a business, compile your income and expense records for the year to date.
- Medical and Dental Expense Records: Gather receipts for any out-of-pocket expenses.
- Medical Mileage: Document miles driven for medical purposes.
- Education Expenses: Include tuition and related costs if you or a dependent are in post-secondary school.
- Estimated Tax Payments: Gather records of all estimated tax payments paid.
- Charitable Contributions Receipts: Track all donations made to date.
- Current Year’s Pay Stubs: Ensure they reflect accurate withholdings.
For a detailed guide of the many different documents you may need, refer to our 2024 Tax Season Checklist.
2. Check that you’ve paid any taxes due.
Did you need to pay taxes this past year? You can confirm that the IRS received your payment by signing in to your online account. If payments are missing contact your accountant as soon as possible.
3. Keep paying your quarterly estimated tax payments.
High-net-worth individuals often owe estimated tax payments. Ensure you’ve made the appropriate state and federal estimated tax payments to avoid penalties. The deadlines are typically April 15, June 15, September 15, and January 15 of the following year. Check your calendar and ensure your payments are up to date.
- Federal tax estimates can be paid online HERE or paid by check to US Treasury with Form 1040-ES.
- Georgia tax estimates can be paid online HERE or paid by check to GEORGIA DEPARTMENT OF REVENUE with Form 500-ES.
NOTE: Federal and state estimated tax payments need to be made separately.
If you haven’t made any estimated tax payments and had initially planned to, consult with your CPA to assess your situation and avoid penalties. You may need to make catch-up payments.
4. Check your withholdings.
Mid-year is an excellent time to verify your tax withholdings. Use the IRS Tax Withholding Calculator to ensure you’re withholding the correct amount from your income. Adjust your withholdings if you’ve had significant changes in income or deductions to avoid a hefty tax bill or penalty.
Remember to also track other types of income, including side-gigs (which should result in 1099s), online currency investments, income from investments, and more.
5. Factor in your major life changes.
Here are some situations in which you may want to add mid-year tax planning to your services:
- Moving: Changes in residency can affect state tax obligations.
- Marriage or Divorce: These events significantly impact your filing status and tax liability.
- Birth or Adoption: New dependents can change your tax benefits.
- Retirement: Ensure you understand the tax implications of severance and retirement income.
All of these major changes can affect your taxes owed, and other aspects of your financial wellbeing. You’ll like want to meet with both your accountant and financial advisors in order to smoothly pivot your strategies during these major life changes.
6. Get personalized tax planning from your CPA.
A CPA can provide personalized advice based on your financial situation, help you maximize deductions, and ensure compliance with tax laws. They can also guide you through life changes and their tax implications.
Taking the time for a mid-year tax check-up can make a significant difference. Engaging in tax planning in the fall allows you to make strategic decisions before the year ends. This can include:
- Tax Withholding Changes: Plan to adjust withholding for unusual income (bonus/RSUs/stock options) earned.
- Tax Credit Planning: Evaluate tax credits to participate in during the year.
- Tax-Loss Harvesting: Offset capital gains with capital losses to minimize tax liability.
- Charitable Donations: Plan and execute any end-of-year charitable contributions.
- Business Tax Planning: Evaluate business tax savings strategies for income and deductions.
Collaborating with a CPA during this time can help you make informed decisions and optimize your tax position.
Mid-year tax planning helps you adjust your financial strategies in time to avoid surprises during tax season. It allows for strategic decisions like adjusting withholdings, making estimated payments, and planning for deductions.
Remember, tax planning is a year-round endeavor. By staying proactive and seeking professional guidance, you can optimize your financial outcomes and reduce stress during tax season. If you have any questions or need assistance, our team at LittleOwl CPA is here to help.