Mid-year is a great time to do a financial checkup. You can multiply spending, income and tax totals by 2 to get an estimate of what the whole year will look like financially for you. You can also check on your income tax withholding to see if it’s about right.
If you’re paid regularly, just take a look after your June 30 or July 1 paycheck and multiply your “income to date” and “federal tax withheld to date” by 2. That gives you a rough estimate of what your year-end income and taxes look like. If your year-end income looks a lot higher than last year’s, you can have more tax withheld. That increases the probability that you’ll get a refund instead of having to pay more when you file taxes next year.
Here are a few more points to keep in mind:
- This exercise works best if you’re paid a regular salary. It’s much less valuable if your pay goes up and down a lot.
- If you want to get a little more precise with your withholding calculation, there’s a handy calculator at TurboTax.
- If you want to make sure you don’t owe penalties or interest when you file your taxes next year, check out the Safe Harbor Rule, so that you can remain OK even without a good estimate of the next six months’ worth of income.
- Although a big tax refund might look nice, keep in mind that such a refund is vulnerable to identity theft. Caution would argue for not letting so much money accumulate in tax withholdings.