If you’re like me, it’s hard to admit that summer is over and we are quickly headed toward the end of the year. Maybe you haven’t thought about taxes since you submitted your tax return back in April. Well, that was 6 months ago and it is important to check-in on your tax situation while you still have a couple of months left in the year.
Here are a few things you should consider:
Have you withheld enough taxes to cover your tax liability (or at least enough not to get hit with an underwithholding penalty)?
The IRS will look at your cumulative withholding for the year (or your estimated quarterly tax payments), so you should contact your HR department and increase/decrease your withholding as necessary for November and December. If your status has changed this year due to marriage, divorce, birth of a child, etc., then it is especially important to check in.
The IRS Withholding Calculator is a good place to start. The general rule to avoid an underwithholding penalty is to withhold at least as much as your tax liability was for the previous calendar year (different rules apply to high income earners, so be sure to ask your tax advisor about your specific situation).
If you itemize your deductions on your tax return, then you can reduce your taxable income by writing off deductions to charatible organizations. Now is a good time to assess whether you have made all the contributions that you would like to make this year. Just make sure that the organization is “qualified” by the IRS.
Max Your Tax-Deferred Savings
Have you saved up to the IRS limit in your 401(k), 457, 403(b) or IRA accounts? If you are a PERA member, it is easy to contribute to the PERAPlus 401(k) and 457 Plans, just talk to your payroll/HR department. These pre-tax contributions reduce your taxable income and also help you meet your goals for retirement. If you are saving for college for your child, you can contribute to a 529 Plan in order to reduce your state taxes (it will not reduce your federal taxes).
Check your FSA Balance
If you put money into a flex account this year, you should see if you are on track to spend everything before year-end. The “use it or lose it” approach of FSAs means that you don’t want to leave money on the table at year-end.
(Editors Note: The IRS recently announced changes to FSAs that would allow funds to roll over -- if your employer amends your plan. We'll be posting a follow-up in the coming days.)
Know someone that could use this information? Make sure to pass it along!