Summer is not prime tax season and April 15 may seem a long ways away. The reality is that you have ongoing obligations to the Internal Revenue Service (IRS) throughout the year in our pay-as-you-go system. If you are a W2 employee and your employer withholds your taxes, you may not think about the fact that you are paying money into the system throughout the year. While business owners have more direct ongoing interactions with the IRS as they send in quarterly payments, everyone who earns income has a responsibility to get their tax money “in” over the course of the year. This means that there are some things you may want to consider during the summer season to ensure you are complying with IRS regulations. These summer tax tips can help you to follow the tax laws and can help ensure that you are ready when tax season comes.
Tax Tips for SummerSome of the different things that you can do this summer to be ready for tax season include the following:
- Check how much is being withheld from your paycheck by verifying your W4 information. Many people have more money withheld from their paychecks than they actually need. When taxpayers finally do their taxes, they end up getting a refund. This may not be the best idea for you, especially if you are financially strapped and could use the extra cash now rather than in a lump sum refund during tax season. Consider your tax refund the same as giving the IRS an interest-free loan. The IRS does not lend you money interest free.
- You can adjust your withholdings so you end up with less taken out of each paycheck. Your employer can give you a new W-4 form to make this adjustment at any time, and now is a good a time as any to ask for it.
- Increase contributions to your 401(K) or other retirement accounts. If your employer offers a 401(K), you can contribute to this important retirement account with pre-tax money. Employers often match contributions so you should at least contribute up to the “match” amount to maximize the “free” money you receive. If your employer does not offer a 401(K), you can still make contributions to an IRA that you start yourself with a bank or brokerage firm. You don’t want to wait until the last minute to have your contribution made. There is a maximum you are allowed to contribute each year, so if you don’t put money in, you will lose the opportunity to make this tax free investment.
- Keep track of your charitable donations. If you give money to any charitable organizations, you are going to need to keep track of this giving so you can take a full tax deduction for it. Keep your receipts and track the cash so you will have the data on your donations available during tax season.
- Additional disclosures are coming to your W2 regarding the “ACA” the Affordable Care Act. Pay attention to the information you receive from your employer so you can better understand and verify, the components of your benefits.