A Year-Round Tax Calendar

Almost every technique in this book has a deadline, and most of them fall on December 31, not in April. By the time a tax return is being prepared, the year it reports on is closed, and very little can still be changed. The households that pay the least tax are rarely the ones with the cleverest strategies; they are the ones who look at their taxes four times a year instead of once. This chapter turns the rest of the book into a calendar: what to check each season, the dates that cannot be moved, and a mid-year projection that tells you which moves are worth making.

January to April: close last year, set up this one

January 15. The fourth estimated tax payment for the previous year is due, for anyone who pays estimated tax.

By the end of January. Employers send Form W-2. Brokerage Forms 1099 arrive from February into March, and corrected versions are common, so it pays to wait for them before filing if you have a taxable account.

The filing deadline, normally April 15. Three things happen on this date:

• The return for last year is due, unless you file Form 4868 for an automatic extension to October 15. The extension is for filing, not paying: tax owed is still due in April, and interest and penalties run from then.
• It is the last day to make IRA and HSA contributions that count for last year. If you did not fill last year's limits, you still can, up to this date.
• The first estimated tax payment for the current year is due.

Use this season, while last year's return is in front of you, to set this year's plan: your expected income, which accounts you will fill and in what order (chapter 2), and whether your withholding is right.

May to August: the mid-year checkup

By midsummer you know most of what the year will look like: whether a raise, bonus, job change or large sale has happened, and roughly where your income will land. That makes it the best time to project the year's tax and spot the moves worth making.

This filer expects taxable income of $43,900 and a top bracket of 12.0%. The 12% bracket for a single filer runs up to $50,400 of taxable income, so there is room for more income to be taxed at 12% before the next dollar is taxed at 22%. That room is what a Roth conversion (chapter 2) would fill. And because the 0% band for long-term gains ends just below the top of the 12% bracket, at $49,450 of taxable income, most of the same room could instead take long-term gains free of federal tax (chapter 4). Knowing the room in July, rather than discovering it in April, is what makes the move possible. The Roth conversion calculator shows the tax on a conversion of a given size.

June 15 is the second estimated tax payment. If your income has changed, adjust the remaining payments or your withholding now; the IRS Tax Withholding Estimator on irs.gov compares your withholding with the tax you are likely to owe.

Late summer is also when to check whether you are on track to fill your 401(k) by December, since contributions must come from paychecks dated in the calendar year, and whether you will be near any income line that matters to you: the Roth IRA phase-out, the net investment income tax threshold, or the Affordable Care Act subsidy limits if you buy your own insurance.

September to November: choose and act

September 15. The third estimated tax payment is due.

October 15. The extended deadline for last year's return.

Open enrollment, usually October to December. Choose next year's health plan with the HSA in mind (chapter 2), set flexible spending account amounts, and change 401(k) contribution rates for the new year.

October and November: the year-end review. This is when to run the harvesting routine in chapter 4, check mutual funds' estimated December distributions, decide on bunching charitable gifts and fund a donor-advised fund if you use one (chapter 5), and confirm the size of any Roth conversion. Leave enough time: share transfers to charities and IRA custodians' charitable distribution requests can take weeks.

December: the deadlines that close the year

By December 31, or the last business day before it:

• Loss and gain harvesting trades must be executed.
• Roth conversions must be completed; there is no extension for these.
• Charitable gifts must be made, including qualified charitable distributions from an IRA and gifts of shares, which must arrive in the charity's account.
• Required minimum distributions must be taken by people already subject to them.
• Annual exclusion gifts to family must be made to count for this year.
• Final 401(k) contributions must come out of a paycheck dated this year.
• Some states set their 529 contribution deadline at December 31 for a state tax deduction.

Estimated tax and the safe harbors

Wages have tax withheld; much other income does not, including self-employment income, large capital gains, rent and most investment income. If you expect to owe at least $1,000 after withholding and credits, the IRS expects you to pay during the year, on the four dates above, and charges an underpayment penalty, calculated like interest, when you do not.

You avoid the penalty if withholding and estimated payments together reach either 90% of this year's tax or 100% of last year's tax, whichever is less. The second test rises to 110% of last year's tax if last year's adjusted gross income was above $150,000. Paying on the basis of last year's tax is the simplest safe path when income is rising and hard to predict. Withholding has one advantage over estimated payments: it is treated as paid evenly through the year, whenever it actually happened, so raising withholding late in the year can fix an earlier shortfall. The quarterly estimated tax calculator works out the payments.