Tax season can be stressful. When you finally submit your returns in April, you may want nothing more than to set it all aside and stop thinking about taxes until the following year comes around.
Unfortunately, forgetting about your tax obligations sets you up for more panic and disaster the following April. If you take the time to plan ahead, however, you’ll make things more manageable over the long term and probably save yourself some money while you’re at it.
That’s where a mid-year tax check-up comes in. Take the time to meet with an accountant and review your projected tax responsibilities now, while you still have time to put together a plan and adapt.
What Is a Mid-Year Tax Check-In?
A mid-year tax check-in is an opportunity to look over your finances and business processes to ensure everything is running smoothly. You don’t have to submit something official to the IRS, so this check-in is for your benefit. You can evaluate you or your company’s financial health and find ways to save money or get around funding issues coming up down the road.
Benefits of a Mid-Year Tax Check-In
Reviewing your finances and tax obligations halfway through the year gives you a chance to see what’s coming. You can spot surprises before they become an issue and adjust accordingly. Your earnings and spending during the year determine your tax return for the next year, so checking up on it mid-year leaves you plenty of time to react.
A tax check-in doesn’t just prepare you for changes in your tax burden, either. Revisiting your financial records without a looming deadline gives you space to reflect on your long-term strategy and goals for your business. Where is your company going, and where do you want to lead it?
7 Things to Do at a Mid-Year Tax Check-Up
It’s essential to take your time for this process and conduct a thorough evaluation of the state of your business. Follow these steps to make sure you consider all of the fundamentals.
1. Check Your Withholdings
While you’re still in the middle of the tax year, it’s essential to make sure you’re correctly paying taxes as you go. If you don’t make sufficient income tax payments throughout the year, you will likely encounter some significant penalties when you fill out your return. The primary way many people do this is through withholding.
Suppose you have one or more employers that withhold some of your wages to make tax payments on your behalf. In that case, it’s worth revisiting that paperwork periodically to make sure you’re withholding enough. If your income has changed significantly, you might want to change your IRS W-4, Employee’s Withholding Certificate, and request that your employer start withholding more or less of your wages.
2. Review Your Quarterly Estimated Tax Payments
If you don’t pay enough income taxes in withholding, you need to make quarterly estimated tax payments to cover the rest. This is essential for small business owners and anyone self-employed.
Make sure that you’re making your payments on time and paying an appropriate amount. Late or insufficient payments may lead to fines, and calculating the right amount for your quarterly payments depends on accurately predicting your income for the rest of the year.
You can schedule these payments if your business has an account with the Electronic Federal Tax Payment System, but otherwise, you can make each payment directly online. Here are the due dates for the quarterly payments:
- First Quarter Payment April 15
- Second Quarter Payment June 15
- Third Quarter Payment September 15
- Fourth Quarter Payment January 15
3. Review Your Entity Structure
To consider your tax obligations, you’ll need to know precisely how the state and federal governments consider your business as a legal entity. Ensure your paperwork is in order so that you don’t get any unpleasant surprises later on in the year.
The entity you choose for your business will shape the tax process and the paperwork you have to fill out. For some special tax statuses, you’ll need to apply specifically to the IRS as well.
4. Review Your Bookkeeping
An efficient and cost-effective tax process requires good bookkeeping. Check in on your bookkeeping processes partway through the year and ensure that your records are accurate and comprehensive.
Good small business bookkeeping means promptly recording every transaction and maintaining a complete record of your finances. If you’re not keeping track of that cash flow throughout the year, you won’t be able to find that data when you need it for tax season.
Take the time to find your weak spots and identify bookkeeping issues now, and you’ll have time to improve your records before you need them.
5. Update Income and Expense Records
Of course, the bookkeeping records that will be most important to your tax return will be your income and expense records. Make sure these are up-to-date. If you update them as you go, you won’t be overwhelmed or behind when you get back around to tax season.
You need clear income records for calculating your total income for tax liability, and you’ll need good expense records for claiming deductions. Record tax-deductible business expenses as you go so that you don’t forget any or pay more than necessary in taxes.
6. Look Ahead to Year-End Tax Planning to Be Prepared
Now is the time to think ahead and lay the foundations for your year-end tax planning. What are you missing, or what issues do you expect to encounter this year? Are you worried about your record-keeping, or are you concerned about being on the edge of two tax brackets? You’ll save yourself a lot of time and frustration if you start thinking about it now.
What about tax-deductible business expenses? Do you have retirement savings or HSA contributions to make this year? Start scheduling these expenses early, and you won’t have to rush at the end of the year.
7. Get the Opinion of a Professional
If you have any questions, you might want to sit down with an accountant to work through them and make sure you understand your situation. What are you worried or uninformed about in regards to your small business taxes? Getting help from an expert can also be a great way to assess how new legislation might affect your business.
Work out these issues in the off-season while you have space to breathe, and you won’t have to sprint to the finish later! And wherever you are in the process, a professional accountant can help you evaluate your finances and plan for success. Partner with 1-800Accountant today to build a strong financial foundation for your business.