June 23, 2014

For many people, tax season is just that, a finite period which represents the only time they think about their income taxes. While this is an understandable perspective, it is short-sighted and potentially costly. By making a few mid-year tax strategies now to change your circumstances, you can avoid nasty surprises at tax time.

1. Start Making Charitable Donations

Many people only consider making charitable donations during the holidays. But most charities struggle during the summer because donations are down while demand for their services is hardly reduced at all. Have you made good on your resolution to lose weight? Your gently-used clothing would be a much-appreciated charitable donation. Likewise, that old computer could benefit an after school center or direct service organization. Whatever you decide to donate, be sure to get a receipt.

Related article: Claiming Tax Deductions for Charitable Donations

2. Adjust Your Withholdings

Whether you realize it or not, big tax refunds suck. If you always receive a big check from Uncle Sam after filing your taxes, re-calculate how much money is being withheld from your paycheck. Giving Uncle Sam a big interest-free loan every year is never fun, no matter how much you love the refund.

On the other hand, if you find yourself writing big checks to the IRS every year because you’re milking every penny out of each paycheck, it’s time to tighten your belt and allow a larger withholding from your pay envelope.

3. Mix Business With Pleasure

As an entrepreneur, you’re generally limited to deduct 50 percent of business-related meals and other expenses. But if you hold company celebrations such as a Fourth of July barbeques and invite everyone in the company, the IRS allows you to deduct 100 percent of the cost on the following year’s federal income tax returns. Likewise, if you are attending a business-related conference in sunny So Cal, there is nothing wrong with adding a few more days to your stay. The travel expenses can be a written off for business, and you can get a proper vacation too. Just be sure to keep business and personal expenses separate and hold onto your receipts.

Tax Tip: Deductions for Travel and Business

4. Organize That Box of Receipts!

Every year you go into overdrive as you sort through that shoebox full of receipts next to your desk. You struggle through your tax returns, and promise yourself that next year you’ll do better. Next year is now. Schedule an afternoon when the weather is gloomy and organize those tax receipts according to category, month or any other system that works for you. Once you achieve organization and enjoy a smooth tax season next year, you will never be tempted to settle for chaos again.

5. Contribute to (or Start) a Retirement Plan

Even if you love your work and can see yourself continuing in your present capacity forever, it is more likely than not that you will actually retire at some point. Even if you continue working part-time, accumulating savings now can ensure that your golden years truly are golden. And when tax time comes, as it inevitably does, you will have made sizeable tax-deductible contributions to your retirement fund. Doesn’t that sound better than making a vain attempt to scrape together a few hundred dollars in April?

Kiplinger has an excellent article on how to tax plan for retirement here.

6. Start a Side Business for the Perks

Have you always wanted to be your own boss? The IRS allows several generous deductions to bona fide business concerns. The operative word in the previous sentence is “bona fide.” You must be able to demonstrate that yours is an enterprise in pursuit of revenue rather than a hobby to qualify for business-related benefits. Starting now will allow you plenty of time to lay the sort of groundwork the IRS will accept. And don’t worry; you don’t actually have to be making money – at least at first – to qualify for business-related tax breaks.

What kinds of perks? You can write off auto-related expenses, some travel costs, business supplies, even some entertainment costs, to name a few.

7. Learn About Upcoming Tax Changes

Every year brings new adjustments to the tax code. You aren’t expected to understand them all, but the big changes tend to make news. Keep your eyes and ears open for potential tax changes that may apply to your situation. Follow the IRS’ social media pages, and be in the know about current events.

Putting a few of these mid-year tax strategies into work now will ensure that next year’s tax season is less, well, taxing.