Pardon the interruption of your May merry making, but now that the main tax season is over, you need to think about making some tax moves.
I know. You thought you were done when you got your 1040 to the Internal Revenue Service on April 15. Or you thought you didn’t have to think about taxes for six more months when you instead filed for an extension.
Sorry, but this brand new month is the perfect time to get your 2025 tax situation on a money-saving track. Here are three quick suggestions to help.
Adjust your withholding. Regardless of whether you owed a lot of taxes or got a big refund this year, both circumstances are an indication you might want to revise your paycheck withholding amount. The goal generally is to come as close as possible to your eventual tax bill.
Yes, a tax refund is a handy savings account, but with no interest paid by the Bank of Uncle Sam. And too many of us know the pain of owing on April 15. By tweaking your withholding, you can avoid such situations next year. And, if you’re overwithholding, your adjustment will get you, instead of the U.S. Treasury, added money back in every paycheck throughout the rest of the year.
You can find your proper withholding amount by using the IRS’ online tax withholding estimator. Then use the data to complete a new Form W-4 for your payroll administrator to implement.
Add to your nest egg. If your adjusted withholding gives you more money each payday, consider shifting that amount to your workplace retirement account. Simply have your benefits office up your monthly 401(k) contributions to include the new withholding savings amount. Now the money is going to you, not the IRS, and your paycheck is the same amount as it was before.
Most companies let their employees change their 401(k) contribution amounts at any time, but double check with your payroll and benefits administrators. By making changes sooner, you give your retirement nest egg more time to grow.
If you don't have a workplace retirement plan, consider an IRA. You have the choice of a taxi-deferred traditional IRA, which could give you a tax deduction next filing season, or a Roth IRA. A Roth is especially beneficial for young workers (I'll let you decide just what younger is in this case), since the retirement account's already-taxed contributions mean no taxes when, many years from now, the distributions are taken.
Find summer care for your kids. School is winding down, so if you haven’t already, now is the time to figure out how your children will be occupied, and taken care of, during the summer months while you're at work. One option is day camps.
They cost less than sleep-away camps, and there are lots of offerings, so you should be able to find a camp that suits your child’s interests. Plus, you get to see your youngsters in the evenings to learn about the day’s fun activities.
Even better, the cost of day-only camps counts toward claiming the child and dependent care credit. And since it's a tax credit, it reduces your tax bill dollar-for-dollar once you've calculated ow much you owe.
There are limits to the child care credit, both on the income for claiming taxpayers and the amount the tax break provides. Depending on your income, the number of dependent children at the camp, and the camp's costs, the credit could provide a tax break of up to $1,050 for care of one child or as much as $2,100 for camp care costs of two or more children.
More May tax moves: I know, all y'all who finished your 2024 returns were hoping for a break from taxes. But taxes don’t take vacations. So, to ensure that we pay as little as possible, we need to stay on top of our tax matters, too.
You can find even more May Tax Moves over in the ol' blog's right column. As usual, these monthly pieces of tax advice are listed under the countdown clock that's keeping track of the arrival of October's tax extension filing deadline.
And speaking of that countdown to Oct. 15, here’s a bonus fourth May tax move. Don’t wait until the fall to file your 2024 extended tax return.
As one of the tax moves over in the right column notes, the IRS’ Free File online option is still available for qualifying taxpayers. That’s those with adjusted gross income of $84,000 or less. Getting your return out of the way now, and at no cost, will free up your summer for full-time fun, not tax worries.
If any of these tax actions apply to you, make them. Then, when you're done with all the tax moves that apply, have the merriest May ever.
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