Now that April is far behind us, most Americans don't exactly have taxes on the brain. But as we approach the midpoint of the year, it's a good time to reassess your tax situation and make sure you're on track for 2018. Here are four tax moves it pays to make today.
1. Send in your next estimated quarterly payment
If you work as a permanent employee and have taxes taken out of your paychecks regularly, you probably don't need to worry about estimated taxes unless you've earned or expect to earn a sizable amount of money on the side. But if you're self-employed and don't have taxes withheld from your earnings, you'll need to make quarterly payments to the IRS during the year rather than wait until April to pay your tax bill in one lump sum. The deadline for submitting estimated taxes for this year's second quarter is June 15, and that payment should cover the income you received between April 1 and May 31 -- so don't be late.
2. File your return if you got an extension
If you didn't manage to submit your tax return by this year's April 17 deadline, you hopefully requested an extension to avoid a failure-to-file penalty. And while an extension gives you until October to get your taxes in order, you're better off tackling that return now if you haven't begun to do so already. The reason? Though a tax extension will give you more time to send in your return, it doesn't give you more time to pay your tax bill. Therefore, if you owe the IRS money from 2017 (something you may not come to realize until you sit down and go through the motions of filing that return), the longer you wait to pay that debt, the more interest you'll accrue.
3. Examine your paycheck
The Tax Cuts and Jobs Act of 2017 brought forth a number of changes for the current tax year, one of the most notable being a lowering of virtually all individual tax brackets. As such, the IRS issued new withholding tables for employers to follow that probably resulted in a change in your net pay. Therefore, you may have noticed that your paycheck went up this year from last year even if you didn't get a raise. The question is: Are you withholding the right amount?
The answer won't be easy to get at, since we're all in the process of adjusting to the recently implemented tax changes. But if you see that you're not getting all that much more money in your paychecks, you may want to claim additional allowances on your W-4. On the other hand, if you expect to have a lot of extra income this year, whether it be from the sale of investments or from a side hustle, you may want to claim fewer allowances to avoid owing money to the IRS later on.
4. Ramp up your retirement plan contributions
For 2018, the annual contribution limits for IRAs are $5,500 for workers under 50, and $6,500 for those 50 and over. For those saving in a 401(k), these limits are $18,500 and $24,500, respectively.
Now, the good news about these plans is that you're allowed to make contributions at any time during the year, which means that if you've contributed $0 to your 401(k) thus far, you can ramp up right now and get closer to that $18,500 or $24,500 limit by year's end. But if you wait too long, your chances of doing so are apt to get slimmer. So take a look at how you've been doing on retirement savings, and if you're behind, start doing better. Allocate just a bit more money to your retirement plan this month and aim to increase that number month after month so that come December, you're happy with your efforts.
Before you get caught up in the whirlwind of summer, take some time to give your taxes the attention they deserve. With any luck, the moves you make today will improve your financial picture and help you avoid stress when next year's tax season eventually rolls around.