- Days left

Your Mid-Year Tax Checkup: 3 Quick Things to Do Now


For many Americans, procrastinating on taxes is practically a tradition. And though the millions who filed extensions back in April still haven't finished their 2011 income taxes, I'm here to tell you that it's time to start thinking about your 2012 income tax return.

The halfway point of the year is a good time to look at where you stand with your taxes. More importantly, if you discover that you need to make some changes, it's still early enough for the steps you take to make an actual difference for your return.

Let's take a look at some of the things to be sure to look at.

1. Is Your Paycheck's Withholding Right?

The biggest driver of whether you'll get a refund or owe tax come next year is how much tax you have withheld from your paycheck. After they fill out the appropriate form with their HR department when they start work, many people never bother to change their withholding ever again. But often, changing circumstances in your life lead to big withholding errors that can cost you in interest and penalties.

The simple way to check your withholding is to look at your June 30 paycheck and multiply everything by two. Then, compare your salary and tax withheld with your tax return from last year to see if the numbers are roughly the same. If they are, and you were happy with the refund you got or the tax you owed, then you're probably in good shape.

If you want to be more precise, you can fill out IRS Form 1040-ES. It's more complicated, but it gives you more detailed information about how to set your withholding properly.

2. Do You Have Other Income or Deductions?

If you've been fortunate enough to have substantial dividend income or gains from selling investments, congratulations! But that success may bring you a higher tax bill.

Withholding tax from paychecks is convenient, but it doesn't take into account your other income. To make sure you won't get into trouble, take a look at your second-quarter bank and brokerage statements to see how much income you've earned. Because some investments, such as mutual funds, pay a disproportionate amount of their income at year-end, you can't just multiply that midpoint number by two. But if you have big gains, looking for ways to offset them with losses or other offsets now will give you plenty of time to try to cut your tax bill.

Similarly, just as extra income can cost you at tax time, deductions can help lower your IRS bill. If you have new deductions this year, they can offset any extra income you may have. On the other hand, if you had a lot of deductions last year that won't repeat this time around, you need to prepare for greater tax liability.

3. Do You Really Want a Refund?

Obviously, everyone wants to get free money. But as much as your tax refund may seem like a windfall, it's actually money that you already paid to the IRS, and they've gotten the use of it for as much as a year or more.

Some people like the enforced savings that unnecessarily high tax withholding provides. With current interest rates on bank accounts at historically low levels, it doesn't cost you that much in lost interest to let the IRS hang onto your money until you get your refund. But if you carry balances on credit cards or have other high-interest rate debt, then you'll do better reducing your withholding and getting bigger paychecks along the way rather than waiting for a refund.

Procrastination is easy, but it can be costly. Take a look at your taxes today, and you'll be able to breathe a lot easier in the months to come.

Motley Fool contributor Dan Caplinger updates his taxes obsessively. You can follow him on Twitter @DanCaplinger.

Increase your money and finance knowledge from home

Banking Services 101

Understand your bank's services, and how to get the most from them

View Course »

Goal Setting

Want to succeed? Then you need goals!

View Course »

TurboTax Articles

Video: Tax Guidelines About Gifting

Note: Some of the content of this video applies only to taxes prepared prior to 2012. It is included here for reference only. Find out the tax guidelines about gifting with help from TurboTax in this video on tax tips.

Video: What are Income Tax Rates?

Note: The content of this video applies only to taxes prepared for 2010. It is included here for reference only. Income tax rates change depending on both the amount of money you make and how you made it. Find out about income tax rates with help from TurboTax in this video on tax tips.

Video: How To Reduce Errors on Your Tax Return

Did you know that errors on your tax return can affect the amount of your tax bill and the amount of time it takes to get a refund? Fortunately, TurboTax helps you avoid errors AND be sure you're getting all the tax deductions and credits you deserve.

Does Your Company Need to File Form 1095-B?

A company is responsible for filing IRS Form 1095-B only if two conditions apply: It offers health coverage to its employees, and it is "self-insured." This means that the company itself pays its employees' medical bills, rather than an insurance company. A company that doesn't meet both conditions won't have to deal with Form 1095-B. Its employees might still receive a 1095-B, but from their insurer, not the employer.

Video: Who Qualifies for an Affordable Care Act Exemption (Obamacare)?

The Affordable Care Act requires all Americans to have health insurance or pay a tax penalty. But, who qualifies for an Affordable Care Act exemption? Find out more about who qualifies for an exemption from the Affordable Care Act tax penalty, how to claim an exemption on your tax return and how the Affordable Care Act may affect your taxes with this video from TurboTax.

Add a Comment

*0 / 3000 Character Maximum

1 Comment

Filter by:

My income is taxed, my dividends are taxed, what interest I earn on my hard earned dollars is taxed, I pay sales taxes, food taxes, gas taxes, property taxes, taxes, taxes, taxes. All the while the dirty animals on welfare in this Country get it all for free. And even after a whole year of leeching off those of us who do work, the pieces of filth that provide nothing to society, get a tax refund in the form of an "earned income credit". That plus free healthcare, free food, free housing, free cable TV, free utilities, free everything!

Sweet Godalmighty what a sucker I am for working.

August 01 2012 at 4:30 PM Report abuse +1 rate up rate down Reply