With only four months left in 2013 (where did the time go?), now is a good time to look over your finances. I usually look over my tax situation for the year in September because it gives me plenty of time to make any necessary adjustments. If you wait until December, it might be too late. Likewise, if you wait until you file your taxes in 2014, you will have missed out on some benefits. Let’s take a look at areas to review.
Financial Areas to Review
- Determine Your Taxable Income. The first thing you should do is look at your taxable income for the year. Is it the same as last year or higher or lower? Did you get a nice sized refund last year and are expecting the same this year? Depending on your answers, you may want to look into deferring more of you paycheck into your 401(k) account to shelter the income from taxes.
- Adjust Your HSA. Another area to look at is your health savings account (HSA) if you have one. Calculate how close you are coming to the maximum annual contribution ($3,100 for individuals in 2013) and make an adjustment to get there. While you don’t have to have your employer adjust your withholding, it makes sense to go this route.
When you employer takes your HSA contribution from your paycheck, you pay zero tax on that money. When you contribute money to your HSA on your own, you will be able to get a write off on your taxes for federal income tax, but you still paid FICA and Social Security tax on that money. Save yourself some money and just have your employer take the contribution from your paycheck.
- Review Your Filing Status. The next area to look at is your personal situation. Are you having a child this year? How about getting married? Understand that when it comes to marriage, whatever your tax filing status is on December 31st, that is how the IRS considers you for the entire year. So regardless when in 2013 you were married, if you are still married on December 31st you are considered married for the year. This can impact your taxes in a large way depending on your incomes.
I have a friend who makes a large amount of money while her spouse doesn’t make much. But, when you combine their salaries, they are pushed into a higher tax bracket. If he contributes the majority of his paycheck to his 401(k) – limited to $17,500 in 2013 for those under 50 years old – they can avoid this situation. If they didn’t do this, they would have had a nasty tax bill come April 15th, 2014 since their withholdings are still based on filing single.
- Contribute to Your IRA. A final area to look at is IRA accounts. When the year starts out, many of us make the goal of funding our IRA accounts to the maximum for the year. But at some point during the year, that goal gets pushed aside. While you can still contribute to an IRA until the tax deadline next year, depending on how much you can still contribute determines when you should contribute. For some, contributing $5,000 at one time is not doable. By contributing each month over the next seven months, your savings in your IRA account will start to add up.
These are just a few of the important areas to look at when it comes to taxes. It’s never too early to think about taxes. It’s not a fun subject to talk or write about, but the more money you can shelter from the government, the more of your money you get to keep. To me, keeping as much of my money as possible makes spending an hour in September reviewing my tax situation worth it.