Guest Author - Cate Brizzell

I bet you've never done your taxes mid-year before. But you should.

Why?

Because there's still time left to possibly change your deductions and/or rearrange your finances and start setting aside cash should you find you'll likely owe the IRS money come next April.

At least once a year and optimally in early July you should grab your last pay stub and quickly run through a 1040 form. You can print a copy of a blank 1040 form and other supporting schedules by visiting the IRS website (see link at bottom of this article).

Use the data on your pay stub to estimate your total income and taxes withheld (just multiply the amounts earned and withheld each pay period by the number of pay periods per year). Use last year's 1040 to help you estimate itemized deductions and other items that may be relevant to your tax situation, such as child care deductions.

Calculating your taxes mid-year is especially important if you've experienced unique or major financial events, such as the sale or purchase of a home; unexpected windfalls or inheritances; marriage; divorce; births or deaths. All of these types of events will result in higher or lower tax rates, exemptions or gains and losses. If you experience any of these events but don't change the amount of taxes withheld from your paycheck, you could be having too little taken out or you may be lending money to the IRS that you could be putting in the bank today!

When you're done estimating this year's taxes, check to see whether you have a large refund or tax liability. Your goal should be to come close to breaking even. Refunds aren't a good thing, because you're lending the IRS your money for up to 18 months, without interest. A large tax liability isn't good for obvious reasons.

If you find you have a refund or liability you should calculate a new W-9 form and submit it to your employer. Use the data calculated on your "practice" 1040 to complete the W-9 form. Within one to two pay cycles your withholding will change to reflect your appropriate tax liability. Once again, the IRS website at is especially helpful, with an online W-9 calculator that will automatically fill in your information and recommended exemptions, giving you the ability to simply print your form and take it to your Human Resource representative.

Sometimes withholding may not be enough to counterbalance a large tax liability. In such a case, you may want to consult your accountant for strategies you can use now to reduce your liability and soften the blow. For example, you may want to contribute to an IRA this year, or sell poorly performing investments for a loss that will offset an unanticipated increase in income.

Most employees fill out a W-9 form and then never make changes. Or, they'll add an exemption or two when children come along. In reality, it makes good financial sense to check your tax status and update your W-9 at least once, if not more, each year.