It's the middle of summer, and your 2015 taxes are probably the furthest thing from your mind. However, there are some things you can do now that can not only make your life easier come tax time next spring, but could also potentially save you lots of money as well. Here are five of the most effective mid-year tax "checkups" to do this summer.
1. Get organized
If you spend far too much time trying to track down your receipts and other documentation during tax season, you're not alone. However, you'll find that taxes are much easier if you stay organized throughout the year.
You don't need to do anything too complicated. For receipts, a simple coupon organizer you can find at any office supply store can help you keep track of your various deductible expenses and could prevent you from losing or overlooking valuable deductions at tax time. It's also a good idea to circle or highlight the dates on your receipts as you go, as it can save you lots of time and aggravation when claiming deductions. Of course, if you don't like having paperwork lying around, you could always keep digital records.
You should also take the time to organize any income-related paperwork you may have, as well as any documentation of various taxes you've paid. Just to name a couple of examples, self-employed people may make estimated tax payments throughout the year, and you can deduct personal property taxes you pay for vehicles. So make sure you keep the documentation handy.
2. Do your charitable giving when it's needed most
Most people know that charitable contributions are tax-deductible, but too many people wait until the end of the year to make donations. Forty percent of all charitable gifts are made in December alone, and some charities see even more of an end-of-year rush. For example, Teach for America receives a staggering 80.5% of its donations in December.
Instead of waiting until the last minute, consider giving to charities at a time of year when they could really use the money. You could find a local organization like a children's camp that could use the donations, for example. Or, if you don't have much cash lying around, consider donating some items that could be useful to those in need during the summer, like a fan, an old air conditioner, or the summer clothes you don't wear anymore. You can deduct the fair market value of whatever you decide to donate, and you'll be doing some good in the process. Besides, with holiday gifts and other expenses, you probably have enough to pay for at the end of the year as it is.
3. Update your paperwork
Did you receive a pretty big tax refund last year? Or worse yet, did you end up owing money at tax time? Now may be a good time to update your withholding paperwork (that is, your W-4) with your employer. This is especially true if you've gone through any major life changes, such as getting married or having a child.
The best thing to do is to figure out your optimum number of allowances, so you don't end up owing money at the end of the year, but so that you also don't lend Uncle Sam thousands of your hard-earned dollars interest-free. To get started, try using a W-4 calculator, like this one from H&R Block.
4. Know and use your summer tax breaks
There are a few good tax breaks to be had during the summer, especially if you have children. If you send your children under 13 to summer camp, the money you paid might qualify for the "Dependent and Child Care" tax credit, which can be worth up to 35% of as much as $3,000 in expenses. Make sure you know all of the rules (check out this information from TurboTax), because there are some conditions that need to be met. For example, you need to be working while your kids are at camp, and overnight camps don't qualify.
Another good tax break is available if you own a business and hire your children who are under 18 years of age to work for you while they're out of school. In this case, you can deduct the wages you pay them from your own taxable income, and if your business is a sole proprietorship, you won't even have to pay Social Security or Medicare taxes on their wages.
5. Check your retirement contributions
Finally, the middle of the year is an excellent time to get your retirement savings in order, simply because you still have plenty of time to get caught up.
You can contribute up to $5,500 to an IRA ($6,500 if you're over 50) for the 2015 tax year, and contributions to a traditional IRA may qualify for a deduction, depending on your income and employment situation. And, you have until the tax deadline to make your contributions. In other words, even if you haven't put a dollar into an IRA this year, you could start right now and spread your contributions over nine and a half months.
Your 401(k) isn't quite as flexible -- your elective deferrals must be requested by the end of the calendar year -- but, you can choose to contribute up to $18,000 ($24,000 if over 50) to your account. While most of us can't afford to "max out," the middle of the year is a good time to ask yourself, "Can I afford to save more?"
A year-round process
This isn't meant to be an exhaustive list, but my point here is that tax planning should be something in the back of your mind all year round, not just something you do in the beginning of April. If you get in the habit of "tax-smart" behaviors like the ones mentioned here, you can reduce your tax-time stress level and keep more money in your pocket.