12 midyear tax moves for 2012
Thursday, July 05, 2012
Whoa! Slow up there 2012. How did you get halfway over?
I know July kind of sneaked in last weekend. Then the July Fourth holiday popped up in the middle of the week, screwing up vacation plans and basically making today, a Thursday, feel like the week's second Monday.
But regardless of how we got here, the fact is that the first six months of the year (plus a few days) are gone.
Before the same thing happens to the rest of July through December, take a few minutes to note some tax moves that could help you cut what you owe Uncle Sam.
You'll find a list of tax to-do's over there in the ol' blog's left column. Those tax tips are just below the Oct. 15 extended filing deadline countdown clock and July calendar, which makes sense since the recommendations (which are updated the first of every month) are loosely tied to specific dates.
But just to make sure you don't miss some things that could save you valuable tax dollars, here are 12 tax moves to consider at this midyear mark.
1. File your 2011 tax return.
Sure, the extension you got in April gives you until Oct. 15 to finish up your Form 1040, but you don't have to wait that long. The Internal Revenue Service will gladly take your completed paperwork early. And don't forget that Free File is still available.
2. Adjust your withholding.
Did you get a big refund this year? Or did you owe the IRS a lot? Either way, adjust your payroll withholding. Your goal is to get the Goldilocks "just right" amount of income taxes taken out of your paychecks so that it's as close as possible to your eventual tax bill. That's easier to do over six months instead of the last one of the tax year.
3. Evaluate your estimated tax payments.
You just sent in your second estimated tax amount in June. Look at what you've paid and whether the calculations you made in January for these four extra tax payments are appropriate. If not, you can make adjustments for the upcoming September and January 2013.
4. Investigate your investments.
Although most of us will probably wait until the end of the year to see exactly what Congress does with regard to the low tax rates afforded capital gains and qualified dividends, it never hurts to give your investments a regular once over. If you see some assets you want to sell for a profit now, do so. Similarly, if you see some dogs you want to let out of your portfolio, do it so they'll no longer drag down your overall net worth. That way you'll lock in the capital gains at this year's 15 percent top rate and bank some losses you can use to offset that income.
5. Donate to charity.
Instead of waiting until Dec. 31 to donate to your favorite nonprofit organization, give now. Summer typically is the slow fund raising time of year for many charities. Your charity will be thrilled to get your money or unwanted household items now. And if you itemize, you've got an entry on the charities section of Schedule A. Just remember to get a receipt!
6. Give away some of your estate.
The federal estate tax law is in the same drifting boat as investments. We still don't know what the House and Senate will do in this area. The estate value exclusion is scheduled to drop on Jan. 1, 2013, to $1 million with a tax of 55 percent on assets left that exceed that amount. The unified gift tax amount also will fall. Right now, though, the estate tax/gift tax is $5.12 million. And you can hand out gifts of $13,000 toward that limit to as many people as you want without any gift tax worries for you or the gift recipients.
7. Contribute to your retirement plan.
Don't forget to give to yourself! The sooner you put money into your retirement plans, the longer it has to grow to the amount that will ensure the type of post-work lifestyle you want. Put the maximum into your IRA, Roth or traditional. Don't forget your company's 401(k) plan. And look into whether converting a traditional IRA to a Roth is a good move for you.
8. Go house hunting.
Yes, buying a house is a major life and financial move. But if you're at that point, then now is a great time to look into homeownership. Mortgage rates are at historic lows. Homes in most parts of the country are quite affordable. And there still are lots of tax breaks associated with owning a residence. I know there's talk in D.C. about trimming some of the homeownership tax benefits, but it's not likely to happen soon. And even if or when it does, the changes will be phased in over several years. In the meantime, enjoy your house and the tax breaks.
9. Go greener.
Record temperatures have already blasted much of the country. Maybe it's time to make some major energy conservation moves at your house. Uncle Sam can help. Ambitious energy upgrades, such as installing solar energy, wind power or geothermal systems, could qualify for a tax credit equal to 30 percent of the residential energy improvement costs, including installation.
10. Bunch your deductible expenses.
This is one of my favorite tax tips, which is why it makes this list and also is this week's featured Weekly Tax Tip. Basically, bunching is a plan whereby you consolidate eligible expenses into one tax year where they will count the most. It helps you clear the percentage thresholds that tend to limit medical and miscellaneous itemized deductions. By looking now instead of frantically at the end of the year at what you expect or can spend in those areas, you'll be in better shape to claim them and trim your tax bill.
11. Prepare for the worst.
This isn't specifically a tax tip, but it does have a tax component. And I'm hoping that you never have to take advantage of that tax connection. We are in the midst of a horrid wild fire outbreak in the western United States. The annual hurricane season's most active months are on the horizon. And severe storms coupled with record heat made for terrible, and deadly, conditions along the Eastern Seaboard. The point it is that disasters can happen any time. So be as prepared as possible. And if you're a victim of a major natural disaster, you might at least be able to get some help when you file your taxes.
12. Get organized.
Is your 2010 tax-filing material still in an unsorted stack? Straighten it out now. Your tax organization system doesn't have to be elaborate. An accordion file works wonders for many folks, including me! If you prefer to set up folders in a file cabinet, do that. Whatever organization system works for you is fine. Just pick one that you'll stick with and start putting business expense receipts, medical bills, charitable deduction substantiation docs and the like into it now.
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