4 Midsummer Tax Moves That Could Pay Off Big Before Year's End

For many people, summer is the optimal time to relax. But it can also be a huge window for tax-planning purposes.

At this stage of the year, you may have a clearer picture of your income, which could lead to more strategic decisions on your part. So rather than wait until the end of the year to make some key tax moves, put these items on your radar now.

Image source: Getty Images.

1. Boost your retirement savings rate to shield more income from taxes

It's easy to underestimate how quickly the year moves once fall arrives. That's why mid-summer is a good time to check your retirement savings progress.

If you're contributing to an IRA or 401(k) and are hoping to max out or hit a certain goal, take a look at how much you've saved to date. If you're behind, you still have multiple months to increase retirement plan contributions gradually rather than scramble in December.

And if you're age 50 or older, don't forget about catch-up contributions. They can significantly boost your retirement savings, and you don't need to be "behind" on savings to make them.

2. Consider Roth conversions if your current tax rate is favorable

If you have money in a traditional IRA or 401(k), summer is a great time to evaluate whether a Roth conversion fits into your strategy.

A Roth conversion involves moving money from a traditional retirement account into a Roth IRA, where future investment gains and withdrawals are yours to enjoy tax-free. Plus, Roth IRAs do not force you to take required minimum distributions (RMDs).

The trade-off, of course, is that you pay taxes on your conversion the year you make it. So it's important to do a conversion when it makes financial sense.

If your income is lower this year than it's been in the past, whether because you took a different job or retired, then you may be in a position to do a Roth conversion at a lower tax rate. That could result in big savings.

And remember, even a partial Roth conversion could be helpful to you once RMDs come into play. So if you're sitting on a larger balance in your traditional IRA or 401(k), you don't necessarily have to stress about moving all of it into a Roth. Converting even 50% of your savings could help minimize RMDs and the taxes that tend to come with them.

3. Harvest investment losses to offset gains

If you've had a mix of winners and losers in your investment portfolio this year, you may be able to use tax-loss harvesting to your advantage.

Tax-loss harvesting involves selling investments that have declined in value to offset capital gains from other investments. And if your losses exceed your gains, you may be able to deduct up to $3,000 of losses against ordinary income and then carry remaining losses forward to future tax years.

Summer can be an ideal time to review your portfolio so you're not scrambling to unload assets before Dec. 31. And even if you don't have losses to take, a mid-year portfolio review could help you identify imbalances or stocks that no longer fit your long-term goals.

4. Reduce your chances of a surprise tax bill

One of the easiest tax mistakes to make is assuming your withholding or estimated tax payments are accurate. If you're underpaying the IRS, you could be headed for an unexpected tax bill next spring. And if you're overpaying your taxes, you're giving the government an interest-free loan instead of using that money yourself right away.

At this stage of the year, you may have a good sense of what your total income picture will look like for 2026. That makes it a good time to do a withholding or estimated payment checkup.

If you're a W-2 employee, review recent pay stubs to see how much federal tax is being withheld from your checks. If the number looks off based on your income, you can adjust your withholding with your employer so that more -- or less -- money is taken out of each paycheck for the rest of the year.

If you're self-employed, it's a good time to update your projected annual income and make sure you're sending the IRS enough money via your estimated quarterly tax payments. If you're worried you aren't paying enough, increasing your upcoming payments could help you avoid a penalty and large balance-due situation in April.

The midpoint of the year is a great time to make smart tax-related decisions. Put these tasks on your calendar for July to set yourself up for more potential savings and a smoother tax season next spring.

The Motley Fool has a disclosure policy.