Mid-Year Tax Check-Up: Essential Strategies for Maximum Savings

September hits and most people are reminiscing about their summer vacation. Smart taxpayers? They’re thinking about their mid-year tax position. Because here’s the thing – waiting until December to look at your tax situation is like trying to lose 20 pounds the week before your high school reunion. Possible, but you’re going to hate the process.

A mid-year tax check-up gives you actual time to make moves that matter. Real adjustments that can save you thousands. Not the scrambling-in-December kind of planning where you’re limited to whatever quick fixes you can pull together before January 1st rolls around.

Why Mid-Year Matters More Than Year-End

Most financial planning happens in reactive mode. Something changes, you deal with it. Your tax situation changes throughout the year whether you pay attention or not. Salary increases, bonuses, investment gains, life changes – they all shift your tax picture. By September, you have eight months of real data to work with instead of guessing what might happen.

The IRS doesn’t care that you didn’t know your tax bracket jumped. They don’t offer retroactive planning discounts. What they do offer is a system where smart mid-year moves can legally reduce what you owe them.

Employer-Sponsored Retirement Plans: Your Biggest Lever

Here’s where most people leave money on the table. If you’re not maximizing your employer-sponsored retirement plan contributions, you’re essentially giving the government an interest-free loan. For 2025, you can contribute up to $23,500 to your 401(k). If you’re 50 or older, add another $7,500 as a catch-up contribution.

But here’s what trips people up: they think about retirement contributions as annual decisions instead of ongoing adjustments. Your mid-year check-up should include calculating whether you’re on track to hit the maximum. If you got a raise in March and didn’t adjust your contribution percentage, you might be leaving employer matching money and tax deductions sitting there.

Common mistake number one? Not understanding how employer matching works. If your company matches 50% of your contributions up to 6% of your salary, and you’re only contributing 3%, you’re walking away from free money. Not complicated free money. Actual free money.

Common mistake number two? Assuming you can’t change your contribution mid-year. Most plans allow adjustments during the year. Some even allow you to front-load contributions if you want to get the tax benefit earlier.

What happens if you don’t optimize this correctly? You miss out on immediate tax deductions and potential employer matching. Plus, you lose the compound growth on money that could have been working for you instead of sitting in a checking account earning practically nothing.

The Employer Side of Retirement Benefits

From the employer perspective, these retirement plans aren’t just nice-to-have benefits. They’re strategic tools for attracting and keeping talent. Companies that offer strong 401(k) matching see lower turnover rates. When employees stay longer, training costs drop and productivity increases.

But here’s what employers struggle with: employee participation rates. The IRS requires that highly compensated employees can’t contribute disproportionately more than regular employees. If participation rates are low, the company might have to limit contributions for their higher-earning staff. That’s why you see employers pushing financial education and automatic enrollment features.

Smart employers also use retirement benefits as retention tools. Vesting schedules mean employees have to stay a certain number of years to get the full company contribution. It’s a built-in incentive to stick around, and it works.

Charitable Gifting Opportunities: Beyond Writing Checks

Charitable giving gets interesting when you stop thinking about it as just writing checks to causes you care about. Mid-year is perfect timing to evaluate your charitable gifting strategy because you can see where your income and deductions are likely to land by December.

If you’re itemizing deductions – or close to the threshold – charitable giving can improve both your tax outcome and your philanthropic impact. The key word there is “strategy.” Random charitable giving helps the organizations you support. Strategic charitable giving helps them and reduces your tax bill.

Instead of donating cash, consider gifting appreciated securities. Say you bought stock five years ago for $10,000 and it’s now worth $25,000. If you sell it to donate the cash, you’ll owe capital gains tax on that $15,000 gain. But if you gift the stock directly, you avoid the capital gains tax entirely and still get to deduct the full $25,000 fair market value, subject to certain limits.

This isn’t complicated. Most brokerages have systems set up to transfer securities directly to charitable organizations. The paperwork takes about the same time as writing a check, but the tax benefits are significantly better.

For people who give consistently over time, a Donor Advised Fund streamlines the process. You get an immediate tax deduction when you contribute to the fund, then you can recommend grants to specific charities over time. It’s like having your own private foundation without the administrative headache.

With any and all tax strategies, it is advised to seek advice from an accountant to determine what is best for your unique situation.

Required Minimum Distributions: Making the Best of a Mandatory Situation

If you’re 70½ or older, Required Minimum Distributions from your retirement accounts aren’t optional. The IRS wants their tax money on funds that have been growing tax-deferred for decades. Fair enough. But you still have some control over how this impacts your overall tax situation.

A mid-year review ensures your RMDs are on track. Miss the deadline or take too little, and you’re looking at a 50% penalty on the shortfall. That’s not a slap on the wrist – that’s a financial punch in the face.

But here’s a strategy most people don’t know about: Qualified Charitable Distributions. If you’re subject to RMDs and you also give to charity, you can satisfy your RMD requirement by directing money straight from your IRA to a qualified charity. The distribution counts toward your RMD, but it doesn’t count as taxable income.

This works particularly well for people who don’t itemize deductions. You still get the benefit of charitable giving through reduced taxable income, even though you’re taking the standard deduction.

Tax Loss Harvesting: Your Mid-Year Opportunity

Investment accounts outside of retirement plans create ongoing tax management opportunities. If you have investments that are down from where you bought them, those losses can offset gains elsewhere in your portfolio. This is basic tax loss harvesting, but timing matters.

Mid-year gives you a clear picture of your gains and losses so far. Maybe you took profits on some investments earlier in the year. Those gains are going to create a tax bill. But if you have other investments sitting at a loss, you can realize those losses to offset the gains.

Roth IRA Conversions: Playing the Long Game

Roth IRA conversions deserve consideration during your mid-year review, especially if you have a year with lower income than usual. When you convert traditional IRA money to a Roth IRA, you pay taxes on the converted amount now, but future growth and withdrawals are tax-free.

This makes sense when you expect to be in a higher tax bracket in the future, or when you want to reduce future Required Minimum Distributions. It also makes sense if you have a year with unusually low income – maybe you took time off, had a job transition, or had business losses that reduced your taxable income.

The key is running the numbers mid-year when you have a realistic picture of where your income will land. Converting too much could push you into a higher tax bracket for the current year. Converting too little means missing an opportunity to get money into the tax-free bucket.

State Tax Considerations

Your state tax situation might offer additional planning opportunities that complement your federal tax strategy. Some states don’t tax retirement income. Others offer tax credits for charitable giving or college savings contributions.

If you’re considering a move to a different state, timing can have significant tax implications. Some states have different rules about how they tax capital gains, retirement distributions, or business income.

This gets complicated quickly, which is why a mid-year review with your tax advisor should include a look at your state tax situation, not just federal.

When Professional Help Makes Sense

Tax planning gets complex quickly when you start optimizing across multiple strategies. The interaction between different types of income, deductions, and tax-advantaged accounts creates scenarios where a move that saves taxes in one area might cost you in another.

Fragasso Financial Advisors, a Pittsburgh wealth management firm, wrote a comprehensive blog post about tax efficiency checkups that examines these strategies from multiple angles. Their analysis covers both the taxpayer perspective and the broader financial planning implications – advising collaboration with a tax professional, offering a thorough look at how mid-year tax planning fits into overall wealth management strategies.

The reality is that most people benefit from professional guidance when their financial situation becomes complex enough that small mistakes have big consequences. The cost of professional tax and financial planning advice usually pays for itself through strategies and opportunities that individuals miss on their own.

Your mid-year tax check-up isn’t about finding magic solutions that eliminate your tax bill. It’s about making sure you’re using all the legal strategies available to optimize your tax situation. The difference between reactive tax planning and proactive tax planning often amounts to thousands of dollars over time. Mid-year can give you the time and information to make that difference work in your favor.

Investment advice offered by investment advisor representatives through Fragasso Financial Advisors, a registered investment advisor.