Time To Have Mid Year Tax Review

Monday, July 2, 2012, 2:00 AM | 1 Comment

When you go to the dentist twice a year for cleaning and checkup, why not visit your tax status the same – twice a year. Because it’s mid year, this is a good time to do so.

This year is special because of changes that may be coming to you. Congress so far has not extended the Bush Administration implemented tax cut which expires at the end of current year.

The Social Security payroll tax cut enacted this year also will end. The exemption of millions of middle-class families from the alternative minimum tax will be no more.

Do yourself a favor and go over your tax status. A mid-year tax review makes a lot more sense this year than previous ones. At least you would be relatively prepared when it’s time to file your tax return next year.

What you might want to do…

There are a few things you can do to get yourself prepared mentally so you are ready to file tax return next year.

  • Find out your current year income…

    Now that you have received your paycheck at the end of June, multiply the year-to-date income with 2 and you get full year estimated income.

    Doing the exercise would put you in a lot better position where you stand concerning your tax filing next year.

  • Your withholding…

    Your withholding from last year may have changed. The IRS recommends reviewing your withholding during the year. You make sure it’s in line with what your tax liability is likely to be.

    Your exemptions may have changed for a variety of reasons and therefore your withholding will change as well.

  • Tweak the amount you withhold…

    You may want to tweak the amount you withhold using IRS withholding calculator for two reasons: One, you might owe money and two, you might appear headed for an unwisely large refund.

  • Review your retirement account…

    It’s a good time to review your contributions to 401(k), IRA or Roth IRA that you may have or you should have. Make sure you are contributing enough to get the company match in your 401(k).

    Review also your medical reimbursement account, if you have one, to make sure you are taking full advantage of it.

You should be prepared for any changes that Congress makes so you can be ready mentally if they ever pass the laws for the changes.

  • Payroll tax…

    The temporary tax cut that has been in place since last year will expire by the end of the year. An average family will lose an additional $1,000. So if you are on tight budget, you should think of ways how to replace that amount.

  • Capital gain tax…

    Capital gain tax so far has been 15%. If Congress did nothing, it would rise back to 20%. If you are planning to sell stock or vacation home next year, you might want to do it this year. Talk to your financial adviser.

  • Dividends…

    Tax on dividends so far has been 15%. If Congress did nothing, you will pay tax on dividends per your individual tax rate. That means it can go as high as 39.6 percent for upper-income taxpayers.

  • Medicare…

    On Thursday, June 28, 2012, Obamacare was upheld by the Supreme Court. Seniors and people with disabilities will continue to receive more affordable prescription drugs under Medicare. For many folks, it’s a big relief.

    However, millions of wealthy taxpayers face tax increases related to Medicare. High-income individuals would pay a surtax of another 0.9 percentage points on earned income over $200,000, or $250,000 for married couples.

    High-income households also face a new 3.8 percent tax on investment income. Congress approved that tax to help finance the health care overhaul.

  • Alternative Minimum Tax (ATM)…

    The Alternative Minimum Tax affects you if your income is more than $200,000. This is a little complicated so I suggest you Talk to your financial adviser.

  • Estate Tax…

    Presently the estate tax is 35%. It would rise to 55%. At the same time, exemption level would fall from $5 million to $1 million. The lower level will thus include many more estates.

    Therefore, if you have a large estate and want to remove some taxable assets from it, for example, if you are planning to give gifts of some kind from the estate, this might be a good year to do so at the lower estate tax of 35%.

In a Nutshell
IRS advises to do your mid year tax review so you are better prepared next year when you file your tax return.

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