The 10-Minute Tax Checkup Everyone Should Do This Month

Jigsaw Puzzle of Tax Forms
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If you're like most people, you don't think about taxes until around February or March, and according to the IRS, 20 percent to 25 percent of us put them off until April.

It's no wonder there are so many procrastinators. Between the deadlines and the uncertainty surrounding how much you'll owe or have refunded, taxes are stressful.

But it doesn't have to be that way. The IRS offers a simple calculator on its website that will estimate your total tax burden. If you're fairly organized, figuring it out will take as little as 10 minutes (I timed it). And by checking in on your tax standing by October 1, you have three months to make adjustments -- and avoid surprises come April.

Find Out How Much You Owe

The first step is to go to the free, user-friendly IRS Withholding Calculator and answer the questions about your tax filing status and dependents.

Next you'll be asked for income information. For most people, your most recent pay stub will have the necessary numbers. If you're self-employed, take the extra time to add up your income so far and estimate what you'll get for the last quarter of the year.

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Next, you'll be asked about expected deductions -- these are often similar to the deductions you took last year, so you can use your 2012 return as a guide. If your tax situation has changed significantly (say, you bought or sold a house, or had significant medical expenses), do your best to estimate the amounts. Mortgage interest information can be found on your monthly statement or via a quick call to your lender. Since this is often people's largest deduction, it's worth taking the time to get a number that is as close as possible to reality.

The calculator will then provide an estimate of how much you'll owe compared to how much you are on track to have withheld at the end of the year. It will also give guidance on how to adjust your withholdings for the rest of the year to either make up the difference or prevent having too much withheld.

Take the Edge off the Tax Bite Now

Now that you know where you stand, it's time to take action. Changing your withholdings is as easy submitting an updated W-4 form to your payroll administrator. You may also want to consider other steps to manage your overall tax bill.

If you expect to owe, look into beefing up your deductions. Here are a few suggestions:
  • Make your January mortgage payment in late December. This boosts the amount of mortgage interest you can deduct. You may also be able to prepay property taxes.
  • If eligible, plan to make a deductible IRA contribution before April 15, 2014.
  • Purchase any deductible professional equipment such as a new computer before the end of the year.
  • Ask to have any year-end bonuses paid after Jan. 1 (thereby pushing the tax hit to 2014).
  • Make extra charitable contributions.

If you're expecting a refund, lucky you! Sure, you can take the money and run, but why not consider ways to shift some of your tax liability forward?
  • If you have stock options, think about exercising them before the end of the year so your expected refund can counter the resulting tax hit.
  • You may also want to review your portfolio for any winners you're ready to sell, or consider a Roth IRA conversion.
  • If nothing else, at least file as early as you can, and put that money back to work for you.

Regardless of your situation, knowing what to expect allows you to make smart choices about everything from tax-loss selling to Roth IRA conversions now, when those moves can help you most.

Robyn Gearey is a Motley Fool contributing writer.
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