How to avoid 'surprises' on your 2022 taxes with a midyear check up, according to a CPA

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Key Points
  • "Make sure your withholdings coming out of your paycheck are sufficient," says Howard Samuels, a certified public accountant at Samuels & Associates.
  • If you've had a life event, make sure you're accounting for that in your tax planning, Samuels says.
  • "FSAs are use it or lose it, so make sure you're taking advantage of the money in your account," he says.

July marks the middle of the calendar year. If you have some downtime this summer to check in on your taxes now, you'll thank yourself come Tax Day in April 2023.

Taking stock of where your income stands midyear can help you avoid a surprise bill next spring, and it'll help you ensure you're taking advantage of all the tax breaks you're eligible for, says Howard Samuels, a certified public accountant at Samuels & Associates in Florham Park, New Jersey.

Here are four midyear tax planning tips to consider, according to Samuels.

1. Review your withholdings

Your tax withholdings are the money your employer withholds from your paycheck for federal and state taxes. Accurately filling out your W-4 is a key decider in whether you get a refund or a bill at tax time.

"You should probably be doing some kind of a projection for the year to make sure your withholdings coming out of your paycheck are sufficient to cover your tax bill at year-end. That way there's no surprises," Samuels suggests.

If you had a major life event, like a marriage, a divorce, or a new baby, these figures are especially important to revisit. "Look at your withholdings and estimated tax payments to determine if they're still appropriate," he says.

There's also a free IRS Tax Withholding Estimator which can help you see if you're on track.

2. Report income changes on ACA policies

If you have health insurance through your state's health insurance marketplace established under the Affordable Care Act, it's important to report changes that may affect your premiums, says Samuels. "The whole way the marketplace works is they say they'll cover a specific amount of your health insurance based on your income," he says.

Changes you ought to report to the marketplace include gains or drops in income and life events that affect the number of people in your household, according to Healthcare.gov.

If you end up earning more than expected, you could be on the hook for repaying some or all of that health care subsidy at tax time. "A lot of people are in a state of shock when we do their tax return," Samuels says.

On the flip side, a decline in income could qualify you for lower premiums.

3. Plan out health FSA spending

Halfway through the year is a great time to check in on the balance of your health flexible spending account, or FSA, which allows you to put some of your pretax income toward qualifying medical, dental, and vision expenses, along with other health-related products and services. For 2022, workers can contribute up to $2,850.

While there are some provisions that may let you roll over some money into the next year, mostly FSAs are "use it or lose it," Samuels says. "So make sure you're taking advantage of the money in your account." Start thinking now about how you might use remaining funds in the second half of the year.

"Otherwise when year-end comes around, you may be forced to spend that money on something you don't necessarily need, like another pair of glasses, just so you don't lose the money," he says.

4. Reassess retirement contributions

Halfway through the year is a great time to look at your 401(k) and IRA to see if you're on track to meet whatever goal you set for the year. If you want to max out your contributions, run the numbers to see how much you need to save from your remaining paychecks this year.

Boosting pretax retirement contributions reduces your taxable income for the year you contribute, which can be a boon when you file.

You can put away $20,500 into your 401(k) for 2022, with an extra $6,500 if you're 50 or older. The contribution limit for an IRA is $7,000 this year for savers age 50 or older.

If you have a company-sponsored retirement plan you aren't contributing enough money to get your employer's full 40(k) match, you may be missing out of free money.

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