Most people do not think about taxes until the filing deadline starts getting closer. However, the middle of the year is one of the best times to review your finances, make adjustments, and avoid surprises when it is time to file your return.
Mid-year tax planning gives you time to correct withholding, organize important records, take advantage of available deductions, and make better financial decisions before December 31. Here are several strategies to consider during the second half of the year.
1. Review Your Income and Tax Withholding
Start by comparing your income and federal tax withholding so far this year with what you expect for the full year. This is especially important if you:
- Started a new job
- Received a raise or bonus
- Have more than one job
- Got married or divorced
- Added a child to your family
- Started receiving retirement income
- Earned money from investments, rental property, or a side business
If too little is being withheld, you could face an unexpected tax bill or possible penalties. If too much is being withheld, you may be reducing your take-home pay unnecessarily.
The IRS offers an updated Tax Withholding Estimator that can help taxpayers review their federal withholding. If an adjustment is needed, employees can submit a new Form W-4 to their employer.
2. Review Your Estimated Tax Payments
Business owners, independent contractors, landlords, and people with significant investment income may need to make quarterly estimated tax payments.
Federal income taxes operate under a pay-as-you-go system. In general, individuals who expect to owe at least $1,000 when filing their return may need to make estimated payments. Waiting until tax season to pay the full amount could result in an underpayment penalty.
A mid-year review can help determine whether your current payments still make sense based on your actual income and expenses. If your income has increased or decreased, your remaining payments may need to be adjusted. The IRS provides additional details in Publication 505.
3. Increase Retirement Contributions
Contributing to a retirement account can help strengthen your long-term finances while potentially providing tax benefits.
For 2026, employees can contribute up to $24,500 to most 401(k), 403(b), and governmental 457 plans. Additional catch-up contributions may be available based on age. The IRA contribution limit for 2026 is $7,500, with an additional catch-up contribution available for eligible individuals age 50 and older. Income and workplace retirement-plan rules can affect whether a traditional IRA contribution is deductible.
Reviewing your contributions now gives you time to increase the amount taken from each paycheck gradually instead of trying to make a large contribution at the end of the year. You can review the current limits on the IRS retirement contribution page.
4. Check Your Health Savings Account
If you are covered by an eligible high-deductible health plan, contributing to a Health Savings Account, or HSA, may provide valuable tax benefits.
For 2026, eligible individuals can contribute up to $4,400 for self-only coverage or $8,750 for family coverage. People age 55 or older may qualify for an additional $1,000 catch-up contribution.
HSA eligibility and contribution limits depend on your health coverage and the number of months you were eligible during the year. It is a good idea to review your contributions before increasing them.
5. Keep Track of Business Income and Expenses
Small-business owners should not wait until the end of the year to organize their financial records. Review your bookkeeping, bank accounts, receipts, mileage records, payroll information, and business purchases now.
Make sure personal and business expenses are kept separate and that each business expense has the proper documentation. This makes tax preparation easier and helps ensure that eligible expenses are not overlooked.
Mid-year is also a good time to review your expected annual profit. That information can help you plan for estimated taxes, retirement contributions, equipment purchases, and other year-end decisions.
6. Review Investment Gains and Losses
If you sold stocks, cryptocurrency, real estate, or other investments, review your gains and losses before the year ends. Investment income can affect your federal tax bill and may also affect other deductions, credits, or taxes.
Investment losses may sometimes be used to offset taxable gains. However, special rules apply, including restrictions on selling and quickly repurchasing the same or a substantially identical investment.
Washington residents should also be aware that certain long-term capital gains may be subject to the state’s capital gains tax. Washington’s rules, deductions, exemptions, and tax rates differ from federal rules, so large transactions should be reviewed before they are completed. More information is available from the Washington Department of Revenue.
Before buying or selling an investment for tax reasons, speak with both your tax professional and financial advisor.
7. Organize Your Charitable Giving
If charitable giving is part of your financial plan, start organizing your donation records now. Contributions must generally be made to an eligible organization to qualify for a federal deduction.
Keep receipts, acknowledgment letters, and records of noncash donations. Additional documentation or an appraisal may be required for certain property donations. Remember that charitable contributions generally provide a federal income-tax benefit only when you itemize deductions, although limited exceptions may apply.
The rules can vary depending on the amount and type of contribution. The IRS explains the requirements in Publication 526.
8. Consider the Tax Impact of Major Life Changes
Changes in your personal life can also change your tax situation. Let your tax professional know if you have recently:
- Gotten married or divorced
- Had or adopted a child
- Purchased or sold a home
- Started or closed a business
- Begun working for yourself
- Moved to another state
- Retired
- Inherited money or property
- Started paying for childcare or college expenses
Reviewing these changes early provides more time to update withholding, gather documents, and plan for deductions or credits that may apply.
9. Start Organizing Your Tax Records
Good tax planning depends on good records. Create one secure place for tax-related documents and add to it throughout the year.
Your records may include:
- Pay stubs and income statements
- Estimated tax payment confirmations
- Business income and expense records
- Property purchase or sale documents
- Investment statements
- Charitable donation receipts
- Childcare and education expenses
- Medical and HSA records
- Home-improvement records
- Prior-year tax returns
Getting organized now can save time, reduce stress, and make it less likely that important information will be missed during tax season.
Do Not Wait Until Tax Season to Start Planning
Tax preparation looks back at financial decisions that have already been made. Tax planning looks ahead and gives you time to make changes while options are still available.
Lake Stevens Tax Service can review your current income, withholding, estimated payments, business activity, investments, and major life changes to help you prepare for the rest of the year. Every tax situation is different, so recommendations should be based on your specific financial information.
Contact Lake Stevens Tax Service at (425) 334-8138 to schedule a mid-year tax planning appointment and take a more prepared approach to the upcoming tax season.
This article provides general information and should not be considered individualized tax, legal, or financial advice. Tax rules and eligibility requirements vary based on each taxpayer’s circumstances.
