As the middle of the year approaches, few people are thinking about taxes. After all, it's summer and summer is meant for fun and sunshine. But, spending a little bit of time planning can help you to have a much more stress-free spring next year when tax season comes around again. Here are 3 ways to do just that.
Check Your Withholding
Looking at your financial picture during the summer gives you time to make any needed adjustments before it's too late. What kind of adjustments could be beneficial?
If your income has changed, you may want to check whether you're having enough money--or too much--taken from your paychecks for federal or state withholding. The same can happen if your family size has changed, you've gone through a divorce, or someone has started or ended higher education.
The best way to assess how you're doing on your withholding or estimated payments is to meet with your accountant or tax preparer. They will know what kinds of changes can affect your taxes and help you calculate how to correct for the second half of the year.
Adjust Nontaxable Contributions
Halfway through the year is also a great time to increase your contributions to accounts that are free from income tax. This can include individual retirement accounts (IRAs), company 401(k) plans, health savings accounts (HSAs), or certain employee benefits.
If you still want to shelter additional income from federal taxes, there are a few investments you can make outside of retirement accounts. Municipal bonds are exempt from federal tax and often from state or local tax. You can find municipal bond funds in many brokerage companies' portfolios.
Start or Update a Business
If you have a hobby that you've thought about turning into a business, this is the time to do it. Starting in the summer months gives you time to get the business up and running, especially if any longer, legal processes are involved. It also gives you time to organize receipts and income before you meet with your accountant.
Even if you don't plan on making any sales or earning income in the current year, startup expenses can be amortized over multiple years to reduce your overall taxable income. You may even want to take the loss on new business expenses this year to create a business loss that reduces your taxes.
Investing a little time during the warm months can help you reduce your tax bill and make next year even better than this one.
For more information, talk to companies like Alexander & Associates CPA.Share