June, the first official month of summer. For many people, summer is a time for vacations, fishing, and spending time at the beach. Consider adding to that list everyone’s least favorite topic – income tax planning. I know you are thinking, “I just filed my tax return, why do I need to start thinking about my taxes now?” But, a few simple moves now could save you financial and mental stress when tax time rolls back around.

 Start with the Basics

Are you one of those that celebrates a tax refund every year in April? Or were you hit with an unexpected tax bill that stressed you out? Either scenario suggests it’s time to review your paycheck withholdings. If you received a refund of over $1,000, you essentially gave the government an interest-free loan all year. This is your money. Too little withheld and you might face penalties on top of what you owe.

Consider adjusting your W-4 with your HR department to either increase or decrease your federal withholding.

 The Self-Employed Advantage

If you’re self-employed or have significant investment income, quarterly estimated payments can help you avoid year-end surprises and penalties. Review your income projections now and adjust payments accordingly.

Work with a CERTIFIED FINANCIAL PLANNER® professional to determine eligibility for retirement plans exclusively for the self-employed. Planning options for your retirement may enable you to save on taxes for the current year.

Don’t Leave Money on the Table

Summer is perfect for maximizing workplace benefits.

If your employer matches 401(k) contributions, make sure you are contributing the maximum allowable to get the full match from your employer.

Are you enrolled in a high-deductible health plan? If so, you can contribute to a Health Savings Account (HSA) for triple tax benefits: current tax-deductible contributions, tax-free growth, and tax-free withdrawals for medical expenses.

Leftover money in your flexible spending account? Do not forget to use it before you lose it and consider adjusting next year’s contribution based on this year’s actual spending.

Timing Is Everything

Strategic timing can significantly impact your tax bill. Planning a large charitable donation? Consider bunching multiple years’ worth into 2025 to exceed the standard deduction threshold. Have medical procedures you’ve been postponing? Grouping them into one tax year, with other eligible itemized deductions such as charitable, might push you over the deduction limit.

Don’t Wait Until December

The biggest mistake people make is waiting until the last minute. By December, many tax-saving opportunities have expired, and you’re left with limited options, not to mention holiday stress.

Tax planning isn’t just for the wealthy—these strategies can work to help save hundreds or thousands of dollars. The key is starting now, while you still have time to make meaningful changes.

 

Published in the Victoria Advocate

Chris Laughhunn, CPA, CFP® is a Tax & Accounting Principal for Keller & Associates CPAs, PLLC and an Associate Advisor for Keller Wealth Advisors.  

School is almost out for summer! Teenagers will soon be looking for summer jobs to occupy their free time and earn some cash. I still recall the feeling of receiving my first paycheck, “I am rich!” I thought. Only to find out that Uncle Sam “stole” a portion of my hard-earned money before I could enjoy it myself. I feel like this universal experience was an initiation to adulthood, where the responsibility of a first-time job is met with a hefty dose of reality and financial accountability.

As a parent, you may be concerned that your child will spend their hard-earned money frivolously. Earnings from a summer job can be a low-stake opportunity to promote financial responsibility and financial literacy in your household. Nothing says, “Welcome to Adulthood,” like balancing budgets and filing taxes, but it is a critical lesson to ensure your teen has the tools required to conquer their future financial goals.

Taxes – Once your teen’s first paycheck rolls in, sit down with them to review their payroll deductions. Keep it simple – explain to them that taxes are a contribution that working citizens make to help support the country and governmental agencies. Some deductions, like Social Security and Medicare are required money we put away now, to benefit us later in life, whereas federal income tax withholding is like setting aside a portion of your paycheck upfront, so you don’t have a surprise tax bill at year-end. Help your teen understand that their take home pay (or net pay) is what’s left after these deductions are made, as this will be the money they will utilize to formulate their budget.

Let them know they may also be required to file a tax return. As a tax professional, I hear from my clients, family and friends that they dread tax time. Filing your taxes should not be a daunting task. Lead by example and keep tidy and organized financial records, so your teen will develop a good habit now.

Create a Budget – As your teen earns money, help them to develop a budget. When I was teenager, my parents took me to the bank to set up my first checking account and debit card. At the end of each month, we reviewed the bank statement together. Once it was all calculated, I was almost always surprised by how much money I had spent. Help them to outline their income and expenses, while allocating a portion of their hard-earned money to savings. Budgeting is a concept many grown adults do not practice, and a general understanding of a budget now will promote a strong foundation for the future when their financial situation grows complex.

Savings – You’re never too young to start saving, and the first summer your teen works is a great opportunity to open a savings account. Saving up for a new car or stacking away cash for a college fund can be surprisingly fun! I like to think of it as a challenge, always attempting to beat my personal best each month. The satisfaction of achieving a goal, along with financial security is gratifying, even at a young age.

Now that your teen has earned income, this is an opportune time to talk to them about various investment vehicles, like college savings plans, high-yield savings accounts, certificate of deposits and retirement accounts. Long-term saving plans can be a difficult concept for a young person to grasp, but kickstarting a retirement fund, like a Roth IRA at a young age provides advantageous tax savings over time.

Seize this opportunity to teach your teen about taxes, healthy spending habits and the importance of a functional budget. As your teen reaches adulthood, they will be equipped with the knowledge and skills required for a strong financial future and the ability to make rational financial decisions.

Published in the Victoria Advocate.

Carlee Gibbs, CPA is a staff accountant for Keller & Associates CPAs, PLLC.