Halfway through something is always a good time to take stock. And that certainly includes tax planning halfway through a calendar year.
After all, with a tax code that is so complex, there are many potential issues regarding tax deductions, credits and exemptions that can arise. Taxpayers in Southern California and across the nation can therefore benefit from a review of their tax strategy.
The benefits of such a review are two-fold. The goal is not only to minimize the amount of taxes owed. It is also to avoid tax controversies with the IRS or state revenue agencies wherever reasonably possible.
For taxpayers who receive W-2 forms from employers, a good place to start a tax review is by looking at which personal exemptions are in place. You don't want to have too little tax withheld, because then you'll have to pay up to the IRS when tax time rolls around next April. But you don't want to have too much withheld either, because that can leave you constantly strapped for cash.
Regarding personal exemptions, it should also be noted that tax law changes in 2013 phase out these exemptions for taxpayers who are not subject to the alternative minimum tax (AMT). The AMT uses different deduction rules from the regular tax system.
Though Congress tweaked the income threhholds for the AMT in the Fiscal Cliff resolution in January, the AMT remains in effect. It is therefore important to know where you stand regarding personal exemptions and the AMT.
This is only one example of tax considerations that are worthy of review at the year's midpoint. There are certainly many others, with specifics that depend on your particular situation.
Source: Fox Business, "Mid-Year Tax Planning Tips to Do Now," Emily Driscoll, June 14, 2013