By Justin Quen, CPA, Tax Editor
As we reach the halfway point of the year, most Arizonans are focused on sunshine and travel plans. Taxes, understandably, aren’t top of mind. But summer is actually one of the most important times to pause, reassess, and get ahead of potential issues that could become costly headaches by next spring.
Every year, I see people make the same mid-year mistakes, most of which are entirely avoidable with a little awareness and planning.
1. Underestimating Estimated Taxes
One of the most common missteps is ignoring estimated tax payments. This affects a wide range of Arizonans—freelancers, small business owners, landlords, retirees with investment income, and even those who sold property or stock at a gain. If you don’t pay enough in throughout the year, the IRS and Arizona Department of Revenue may charge you penalties, even if you pay in full by April.
2. Overlooking Arizona’s Tax Credits
Another issue is waiting too long to take advantage of Arizona’s remarkable tax credit programs. Our state offers dollar-for-dollar credits for contributions to public schools, private school tuition organizations, qualified charitable organizations, and more. These credits can dramatically lower your tax liability but only if you plan ahead. Too often, taxpayers either forget or rush to make last-minute contributions in December, missing out on opportunities to spread donations across the year or coordinate them with their larger financial goals.
3. Poor Recordkeeping for Side Hustles and Rentals
For those running side businesses, managing short-term rentals, or earning 1099 income, poor expense tracking is another common pitfall. I can’t count how many times I’ve seen clients leave money on the table simply because they didn’t keep detailed records. When you wait until the end of the year to sort through receipts or worse, try to remember expenses from memory it’s easy to miss out on deductions that could have significantly lowered your taxable income.
4. Forgetting Required Minimum Distributions (RMDs)
Retirees in Arizona also face a unique trap: forgetting to take required minimum distributions. If you’re 73 or older, or you’ve inherited an IRA, the IRS requires you to withdraw a certain amount each year. Failing to do so can result in steep penalties up to 25% of the amount you should have taken. Summer is a great time to get ahead of this, especially if you’re considering a qualified charitable distribution, which can satisfy your RMD and provide added tax benefits.
5. Failing to Plan for Capital Gains
Lastly, many Arizonans overlook the impact of capital gains. Whether from selling stock, property, or other investments, capital gains can increase your overall tax burden. While Arizona does offer a valuable 25% subtraction on long-term gains from qualifying assets, it’s not a blanket exemption. Too often, people assume they won’t owe much, only to be surprised when tax season rolls around. Without adjusting withholdings or making estimated payments, this can lead to underpayment penalties or an unexpected balance due.
Finish the Year Strong
Mid-year may not feel like tax season, but it’s the perfect time to make smart moves that can save you money and stress later on. By addressing these five areas now: estimated payments, Arizona credits, expense tracking, RMDs, and capital gains—you set yourself up for a smoother, more strategic finish to the year. A little planning goes a long way.
