With half of 2012 behind you, now is a great time to position yourself for tax savings when you file your 2012 next year. Here are some key actions you can take at this time that will pay off on April 16, 2013 (the due date for filing your 2012 return).
Check withholding and estimated taxes
Make sure you’re on track to pay your 2012 taxes through withholding on wages and quarterly estimated taxes. There are only two estimated tax payments remaining: September 17, 2012, and January 15, 2013
The best strategy is to try to pay as much as you expect to owe, but no more. Underpaying can result in penalties; overpaying means you’ve made an interest-free loan to Uncle Sam. Some individuals like to overpay, with the rationale that a large tax refund can be used for vacation or other family purpose. A better way is to put that excess tax payment to use for you immediately by saving it in a bank account or investing it. You’ll have your vacation, plus a little extra spending money, if you invest wisely.
If you’ve experienced any changes in your circumstances—the birth of a child, the purchase of home, a spouse returning to work—consider revisiting your tax projections for the year. You may want to adjust withholding by filing a new Form W-4 with your employer.
Implement better record keeping
This will enable you to get the greatest tax benefit from your expenditures. For example, good record keeping will position you to choose between itemizing or the standard deduction. It will help you take every write-off you’re entitled to.
- Retain receipts for any expense that could result in a deduction or tax credit.
- Obtain required receipts or acknowledgments for charitable contributions you make.
- Keep a record of your driving so you can write off the cost of driving for business, medical, moving, and charitable purposes.
Monitor your accounts
If you have flexible spending accounts (FSAs) for health or dependent care, review your withdrawals to do. Are you on track to exhaust your contributions for the year? Remember that you must use it or lose it!
Will you be eligible to make a contribution to an IRA or Roth IRA this year? If your income is below applicable limits, you may want to put money in now so that you maximize your tax-deferred or tax-free earnings.
If you have money in a 401(k) or IRA, review your investment holdings. Midyear is an optimum time to do this.
Stay up on tax developments
The tax rules for 2012 are not entirely fixed yet. More than 50 provisions expired at the end of 2011 and have not yet been extended. Many are expected to be extended, at least for this year, but we many not know this until later in the year. For example, the option for those 701/2 to transfer tax free up to $100,000 for their IRA ended in 2011. However, this, along with other breaks, likely will be extended for 2012. Watch JKLasser.com for updates so you can act upon the heels of an extension.