A mid-year tax review is more than just a routine financial check-in—it’s a strategic opportunity to step back, evaluate where you stand, and make informed adjustments that could significantly impact your year-end tax outcome. Taking the time around the middle of the year (typically in July) to reassess your income, deductions, and tax withholdings can help you align your tax planning with any changes in your financial situation or goals.
This halfway point in the calendar year is an ideal moment to course-correct. Whether you’ve experienced major life events—like a new job, marriage, a home purchase, or the birth of a child—or simply seen shifts in income or expenses, a mid-year tax review ensures your tax strategy reflects your current reality. It’s a chance to catch missed opportunities, optimize tax-advantaged contributions, and avoid costly surprises or underpayment penalties when April rolls around.
By taking a proactive approach now, you can position yourself for greater control, reduced liability, and smarter financial decision-making through the second half of the year.
7 Key Reasons for a mid-year tax review
- Changing life events: Significant events like marriage, divorce, or having a child will have a substantial impact on your taxes. Plus, financial changes, including buying a home or changing employment, will influence your overall tax position for the year. Experiencing any of these changes warrants a closer look at your projected 2025 tax position.
- Income fluctuations: A raise, bonus, or starting a new job can change your income level, potentially shifting you into a different tax bracket and affecting your deductions and credits. The One Big Beautiful Bill Act (OBBBA) includes changes in the phase-out limits for some deductions and credits, and it’s important to reevaluate your eligibility in light of the tax reforms.
- Business changes: If you’re a growing business owner, mid-year is a good time to reassess your profit or losses to date and project your financial performance through the end of the year. Your current year’s depreciation, deductions, and tax credits can vary significantly from the last year, so it’s important to build a projection to ensure you’re on track for year-end success. Plus, any tax savings actions must be taken before the year ends, so a mid-year review ensures there is adequate time to execute any new tax strategies that are advantageous to your business.
- Maximizing deductions and credits: Identifying and leveraging deductions and credits early allows you to reduce your taxable income and effectively minimize your tax burden. Once the year is over, there are very few things that can be done retroactively to reduce your tax liability. A mid year pivot lets you be proactive to take full advantage of every deduction and credit for which you are eligible.
- Retirement planning: Mid-year is ideal for assessing your retirement contributions into a 401k or IRA. It’s also the optimal time to consider strategies like a Backdoor Roth IRA conversion. The provisions of the OBBBA kept tax rates at historic lows, making it more attractive to invest with after-tax dollars this year rather than defer that tax to a future period. A conversion would allow you to pay the tax on your retirement savings now, a the current tax rates and shield you from the exposure of potentially higher rates in the future. For some taxpayers, that makes this year the ideal time to switch their traditional 401K contributions to Roth contributions. Here’s a breakdown of the difference:
A Traditional 401(k) lets you defer taxes on your contributions. These contributions are pre-tax, meaning you contribute money before taxes are taken out, which reduces your taxable income now. The growth in your retirement account grows tax-free until you withdraw the money. When you take money out in retirement, it’s taxed as ordinary income.
In contrast, the Roth 401(k) requires you to pay taxes now on your contributions. These contributions are after-tax, meaning you pay taxes on your contributions now, so they don’t reduce current taxable income. However, investments grow tax-free, and qualified withdrawals are also tax-free.
- Capital gains and losses: Reviewing your investment activity at mid-year allows for strategic decisions regarding capital gains and losses, which can help minimize your tax burden.
- Avoiding penalties: Adjusting your withholdings or making estimated tax payments can help you avoid underpayment penalties at year-end.
7 Key areas to review
- Income and withholdings: Review your paystubs and compare them to your previous tax return to ensure accurate withholding. Use the IRS Withholding Estimator to make any necessary adjustments to your W-4 form.
- Deductions and credits: Re-evaluate your eligibility for various deductions and credits based on any life changes or new expenses incurred. This includes expenses such as charitable donations, education expenses, business expenses, and home office deductions.
- Estimated tax payments: If you’re self-employed or have significant 1099 income, ensure you’re making timely estimated tax payments to avoid penalties. Plus consider if you incorporate a more formalized business structure including establishing an LLC and electing to be treated as a pass-through entity to minimize your tax liability.
- Retirement contributions: Maximize your contributions to 401(k)s, IRAs, or other retirement plans to reduce your taxable income. Evaluate the impact of a back door Roth conversion or a switch to Roth 401(K) contributions to determine which serves your best interests.
- Business income and expenses: For business owners, analyze profit and loss, identify potential deductions, plan for estimated tax payments, and ensure compliance and documentation. Connect with a qualified tax professional to assess your capacity to implement tax strategies that will reduce your tax liability.
- Capital expenditures and depreciation: Review your capital expenditures and factor in asset depreciation to potentially lower your business income.
- Estate planning: Consult with a tax professional to review and update your estate plan to align with your current financial situation and goals.
Taking time for a mid-year tax review isn’t just a smart financial move—it’s a proactive strategy that can help you avoid surprises come tax season. By reassessing your income, deductions, and any recent life changes now, you give yourself the opportunity to make timely adjustments that can reduce your tax liability and maximize potential savings. Whether it’s rebalancing your withholdings, boosting retirement contributions, or exploring new tax credits, mid-year is the ideal checkpoint to ensure your tax plan stays aligned with your financial goals. Staying ahead today can make all the difference tomorrow.