Filing taxes is harrowing enough that most of us would rather not think about it throughout the year. But with 2017 rapidly approaching its midpoint, here are a few tax moves you can't afford to put off.
1. Make your estimated tax payment
If you're self-employed, or earn a great deal of income from investments, you'll need to stay on top of your estimated tax payments. Estimated tax payments are due quarterly, and your next installment must be submitted to the IRS by June 15 -- so if you haven't yet figured out how much tax you owe, now's the time to crunch those numbers.
While some people get in the habit of paying the same amount of estimated taxes each quarter, this really only works if your earnings are fairly stable throughout the year. If, for example, you brought in $3,000 less this past quarter than you did during the first three months of the year, you can adjust your tax payment downward. Or, if the opposite holds, and you've earned more, you'll need to submit a higher payment to the IRS to avoid getting penalized down the line.
2. Adjust your withholding
This year, an estimated 97 million refunds have been issued to taxpayers across the country -- and more might very well be coming. But while getting a refund might seem like a reason to celebrate, it actually means that you were kind (or silly) enough to lend the government money for nothing in return.
In fact, the average tax filer who got a refund this year received $2,763. If we break that out over an entire year, that's an additional $230 a month that could be coming your way as you earn it. And if you're among the countless Americans who live paycheck-to-paycheck, that's not the sort of sum you want to be giving up. That's why it pays to take a look at your W-4 and adjust your withholding to get more of your money up front. You should especially consider claiming more allowances if you've added a child to your family this year, or are earning less than you did previously.
3. Starting spending down your FSA
If you opened a flexible spending account (FSA) to use pre-tax dollars to pay for your medical expenses, you've already made one smart move for the 2017 tax year. The problem with FSAs, however, is that they work on a use-it-or-lose-it basis. This means that if you allocate, say, $1,500 to your account, but only manage to rack up $1,000 in eligible expenses, you'll forfeit that remaining $500.
Now technically you have until the end of 2017 (and in some cases, even later) to spend the money you've allotted to your FSA, but if you've yet to make a dent in that balance, now's the time to get moving. Not only will getting ahead of medical issues be better for your health, but you'll be less likely to run out of time and forego some of your money. And while you might think you have plenty of opportunity to schedule those appointments, remember that medical professionals, like the rest of us, tend to go away in the summer, and they also book up in the months leading up to the holidays. In other words, there's a pretty narrow window in there to get your checkups, screenings, or whatever else it is you plan to spend those FSA dollars on, so the sooner you get focused, the better.
4. Open an IRA or contribute to your 401(k)
Of the many tax breaks out there, one of the most lucrative ones comes in the form of retirement plan contributions. Any time you fund a traditional IRA or 401(k), you get to deduct your contributions on your taxes. (In the case of a 401(k), that money will just be deducted from your paycheck pre-tax, so you'll get the same benefit.) And the higher your effective tax rate, the more savings you'll get out of the deal.
Here's an example. Say you decide to contribute $5,000 this year to either type of account, and your effective tax rate is 25%. That move alone will shave $1,250 off of your taxes this year. Workers under 50 can currently contribute up to $5,500 a year to an IRA, and $18,000 a year to a 401(k). If you're 50 or older, these limits increase to $6,500 and $24,000, respectively. It pays to put as much money as you can into a retirement plan not just for the tax savings, but to ensure a financially secure retirement.
Though taxes might be the last thing on your mind what with summer right around the corner, now's the perfect time to take a look at your tax situation and take a few steps to improve it. A few key moves today could save you a chunk of money when the time finally comes to file your 2017 return.
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