Your 4-Point Mid-Year Tax Checkup

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We’re at the midpoint of 2023. Read on to see what key tax moves you should be making. 

The midpoint of the calendar year isn’t exactly a common time to be thinking about taxes. After all, it’s not like your next tax return is due anytime soon.

But even though this time of the year isn’t exactly a popular one for tax-related matters, it’s important to do a mid-year tax checkup. Doing so could leave you paying the IRS less money and help you avoid stress when the time comes to tackle your next return. It could also help you from a cash flow perspective. Here are some key moves to tackle now.

1. Check your withholding

If you’re a salaried employee, your tax withholding determines how much tax is taken out of your paychecks. And it’s important to get that number just right.

If you have too much tax withheld, you might end up with a larger tax refund. But in return, you might end up losing out on money in your paychecks that you need to pay your upcoming bills and generally live more comfortably.

On the flip side, having too little tax withheld could leave you owing the IRS a whopping sum of money when you file your 2023 tax return in 2024. That’s not ideal, either.

Take a look at your withholding and consult an accountant or tax professional to see if it’s accurate. (Your payroll department at work most likely cannot advise you on what to do.) If you need to make adjustments to your withholding, submit a new W-4 to your payroll department so they can process that change.

If you don’t have an accountant to talk to, and you’re not looking to get one, another option is to see if your withholding is the same as it was last year, and then see what your refund status was this past April. If you got a lot of money back from the IRS, it means you may want to adjust your withholding to have a little less tax taken out of your upcoming paychecks.

2. Make sure you’re keeping good records

If you’re self-employed in any capacity, whether it’s your full-time job or a side hustle you’ve picked up, it’s important to make sure you’re maintaining a good record-keeping system. Go through your bank and credit card statements, and make sure you’re recording all purchases related to earning an income. You’ll need accurate records to file your next tax return, and you won’t want to end up scrambling next April to figure out what deductions you’re entitled to.

Some examples of purchases you should be recording include office supplies if you’re self-employed, and equipment needed to do your work, like baking supplies if your side hustle has you making custom cakes.

3. Review your investment portfolio

You may have sold some stocks at a profit this year when the market rallied. If so, you may be liable for capital gains taxes that could result in you owing the IRS money next year.

Take a look at your portfolio and see if there are any stocks it pays to sell at a loss to offset recent gains. If not, you may want to consider paying estimated taxes on your recent gains if they’re larger in nature.

This probably isn’t something you need to do if you’re sitting on a $300 gain in your brokerage account. But for a $5,000 gain, an estimated tax payment could be appropriate, depending on your situation.

4. See how you’re doing on retirement plan contributions

The money you contribute to a traditional IRA or 401(k) plan can serve as a tax break for you — not to mention set you up for a secure retirement down the line. At this point, it’s a good idea to see how much you’ve put into your retirement savings year to date. If you’re not happy with that number, you’ll have another six months to ramp up your contributions.

If you’re under the age of 50, IRA contributions this year max out at $6,500, while 401(k) contributions max out at $22,500. If you’re 50 or older, you can put up to $7,500 into an IRA and up to $30,000 into a 401(k).

So, let’s say you’re 40 years old and want to max out your IRA this year. If you see that you’ve only contributed $2,000 to date, it’s a sign that you’ll need to boost your savings rate in the coming months if you want to hit the $6,500 mark by the time 2023 wraps up.

At this point, a lot of people are deep into summertime mode — and not so focused on tax matters. But if you take the time to tackle these moves in the near term, you’ll be much happier for it once next year’s tax-filing season rolls around.

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