Mid-Year Tax Check-Up – Make the Most of Your Deductions!

As July ends and August begins, the Lancaster Festival is over, and back to school signs appear, income taxes are probably not what is on the top of your mind.  However, this is a great time for a tax checkup.  We are over halfway through the year, but still have a few months left to make some adjustments, if needed.

Mid-Year Deductions & Tax Credits Checklist

Did your child go to summer camp?

This may qualify for a tax credit.  One of the tax benefits available to parents is the Child and Dependent Care Credit if you pay someone to care for your child while you work or look for work. This includes day camp fees (overnight camps do not qualify), babysitter or daycare fees, pre-school fees, etc. If you pay for your kids to go to day camp during the summer, be sure to keep a record of any fees you paid. To qualify for this tax credit, you must have earned income during the tax year, and the child(ren) must be under 13 years old. You must also have the tax ID, name and address of the care provider.

Did you work a part-time job?

If you are a seasonal or part-time worker during the summer, you may not have earned enough income to owe any federal tax, but if they withheld, you will want to file next year to get your refund.  If this is an additional job, you may not have earned enough on just this job to generate tax withholding, but when added to your other income, you may end up owing additional tax.  Reviewing the impact of this additional income is a good thing to check now, so you won’t be surprised next March or April.

Are you earning income from a side gig?

For most side gigs, you are treated as self-employed and will receive a 1099 reporting your income if you earned more than $600.  Your income, less expenses, will be subject not only to income tax, but also to self-employment social security tax, which is 15.3% of your net profit.  You may need to file quarterly estimates to avoid paying an underpayment penalty.  Remember if you are selling goods or services and receive payments via Venmo or similar  apps, and collect more than $600 total, these amounts will also be reported to the IRS in 2023.  (Stay tuned for a future article discussing this.)

Life Changes

Life changes such as marriage, divorce, having a child, or death of a spouse can all impact your taxes. Reviewing your filing status, income and withholding now will avoid a surprise next filing season.

Review Your Paystub

Look at your paystub and see if your withholding has stayed the same or changed compared to your prior year tax return.  Check not only Federal withholding, but State, School and City taxes as well. If the withholding has changed, and it is not a result of your income changing, or a planned change you made to withholding, you may need to revise your withholding for the remainder of the year.  Unfortunately, I often hear stories of withholding being changed when an employer switches payroll companies, and the change isn’t noticed until we are filing the tax returns the following year.

The Scoop on Itemized Deductions

For many taxpayers, itemizing deductions is a thing of the past with the State and Local Tax (SALT) limitations, and the higher standard deduction. Sometimes those itemized deduction totals are consistently close, but barely over or under the standard deduction. There may be advantages to lumping charitable deductions every other year, so that in the odd years you itemize and in the even years you take the standard deduction.  If this is the year you are lumping deductions, it’s also a good time to donate goods (see my prior article on donating vs. yard sales) to maximize your deductions.

Other items to consider discussing with your tax professional are Roth IRA conversions and Qualified Charitable Distributions from your IRAs. I will discuss the details of both of these topics in future articles.

The information contained in this article is provided for informational purposes only and is not intended to substitute for obtaining accounting, tax, or financial advice from a professional for your specific situation.

Filed under: Dollars & Sense, Life, News
Profile photo of Penny Wasem, CPA, CFP, PFS, owner of Lifetime Financial Planning Solutions in Lancaster, Ohio.

By Penny Wasem, CPA, CFP, PFS

Penny L. Wasem is the owner of Lifetime Financial Planning Solutions, LLC. A summa cum laude graduate of Ohio University, Penny earned a Bachelor of Business Administration with focus in accounting and mathematics. She serves on the board of The Fairfield Medical Center Foundation, is a member of the Investment Committee of The Fairfield County Foundation and has been active on many non-profit boards in the community. Penny lives in Lancaster with her husband Eric Hubbard and is parent to Clark and Olivia Hubbard.