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5 Reasons to Do a Mid-Year Tax Review

Every tax season, U.S. taxpayers undergo an amazing ritual.   At the beginning of the year, we start collecting forms from various entities:  banks, creditors, investment companies, our employers, etc.  After we’ve gotten all of our paperwork, we then figure out whether we’re going to waste a weekend slogging through all this paperwork, or if we’re going to outsource it to someone like a strip mall tax preparer or a CPA.  Whatever we decide, our singular focus is to figure out one thing:  “How big is my refund going to be?” 

And if the answer is negative, (meaning that we owe the IRS money), well then that just ruins the whole weekend, doesn’t it?  Whatever the result, all we know is that once we’ve finished (which is usually around April 14 for most people that I know), we don’t think about taxes for another year.  Hell, even if we wanted to, our CPAs are so burnt out after tax season that many firms shut down for a month or two just to recover.   

But is this the right approach?  Many tax professionals offer tax planning throughout the year, notably in the summer and early fall.  Here are 5 reasons why you might want to look at your taxes more than once per year. 

Tax Review Reason #1:  So you can adjust employer withholdings. 

In early 2018, the IRS prescribed new withholding tables for employers, based upon the changes in the Tax Cuts and Jobs at of 2017.  While most people will pay a lower tax bill, there are those people who might pay more in taxes.  However, the withholding tables are largely adjusted to withhold less in taxes.  This could result in a nasty double whammy for some taxpayers:  paying more in taxes, but having less withholdings in their paycheck, which results in an unexpected surprise come tax time. 

Meanwhile, you can avoid this by simply taking 10 minutes to check for yourself on the IRS’ withholdings website.  Here, you can walk through some pretty simple questions about your personal situation, income, and possible deductions.  After answering these questions, the IRS will give you some suggestions on whether you need to adjust your employer withholdings.   

Tax Review Reason #2:  So you can see the tax impact of sudden life events. 

Sometimes, it seems that our taxes just stay the same, regardless of what we do.  And what’s a life event…that’s just when we inherit a bunch of money or win the lottery, right? 

That’s not necessarily true.  Got a child going to college?  You might get a tax credit and deductions for tuition expenses.  Buying a home for the first time?  Perhaps you’ll start itemizing your deductions because of the mortgage interest and real estate taxes you’re now paying.  Or perhaps you’ll install some energy-efficient appliances that will help you become eligible for tax credits.  Or perhaps you just retired.  In that case, you might need to sit down and figure out how your withholdings work now that you no longer have an employer taking money out of your paycheck and paying the IRS on your behalf. 

Tax Review Reason #3:  So you can get sound tax advice. 

Remember tax season?  Your tax professional does.  With dread.  Many firms work 6-7 days a week from late February to the tax filing deadline, just churning out tax returns.  Which is demanding in itself, but they also have to deal with people bringing in late paperwork, the dreaded ‘box of receipts,’ and other things that make you feel good about your decision to outsource your taxes.   

But do you think they have time to really answer your question about tax planning?  If you ask at this time, you’re not going to get the best possible answer.  After all, your tax professional has a singular focus:  getting through tax season.  While you might get some helpful hints and suggestions, you’re probably not going to get them at their best…and it’s not their fault.   

And besides, asking your tax professional about what you should have done for last year’s taxes…that’s kind of like driving by looking only in your rearview mirror.  It’s great if you’re only focused on driving in reverse. 

So don’t hit up your tax professional during tax season, when they’re least able to help you.  Instead, wait until they’ve had a chance to recover from preparing tax returns so you can have an enlightened conversation about this year’s tax return.  

Tax Review Reason #4:  So you can learn more about your options. 

And why would you want to talk with a tax professional?  Hopefully, that’s the person you can have a frank conversation with about the tax impacts of your decision-making.   

But first, you probably need to know about what kinds of decisions you can make with regards to your taxes.  Plan to sell some stock?  Depending on your situation, there’s probably more than one right way to do this.  But there are many tax-inefficient ways to do so.  Talking with your accountant before you make these decisions might help you save money on taxes. 

Looking to increase your charitable contributions this year?  Perhaps you’ll get more bang for your buck if you bunch itemized deductions every other year.  Just retired, but not ready to take money out of your IRA?  Perhaps it’s worth doing Roth conversions while you’re in a low tax bracket.  That way, you don’t get surprised when you have to start taking required minimum distributions and find out that you’re in a much higher tax bracket.  Proper tax planning might help you figure out the best decisions for your situation. 

There are so many different aspects of your life with some sort of tax impact…it’s a good idea to learn as much as you can from your trusted tax professional.  And if you do your own taxes or use a strip mall tax preparer, then a fee-only financial planner should be able to help you understand the tax impacts of your personal situation. 

Tax Review Reason #5:  So you can make tax-efficient decisions. 

What’s the point of all this?  It’s so you can make informed decisions.  After all, it’s a horrible thing to find out what you COULD have done to save money on your taxes, right?  It’s so much better to make decisions with the knowledge that you’re paying as little as possible.   

And it’s important to make sure you’re doing this while you still have time to make changes.  If you need to adjust your withholdings, it’s best to do it mid-year, so you have more paychecks for those changes to take effect.  If you’re looking to contribute to an IRA, it’s probably best to spread out those contributions over the course of the year.  When you do tax planning mid-year, you can always come back at year-end to see what else needs to be done.  But the reverse isn’t necessarily true.   

But let’s not forget.  Paying the least amount of taxes shouldn’t be the entire point.  Otherwise, you’d never sell a stock, even if you became a Silicon Valley millionaire.  The point should be to enjoy your BEST life while remaining as tax efficient as possible.  And that’s best done with proper tax planning. 

What's next? Talk to your tax professional. Psst! That's us!! Yep, we're a one-stop-shop for all of your financial planning needs. We are an Enrolled Agent, which means we are licensed to practice before the IRS AND we can legally advocate on your behalf to them. Let's get your mid-year tax review going now before it's too late. Schedule your appointment now.


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