How to Run a Mid-Year Tax Projection Based on Actual Income: A Step-by-Step Guide

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Introduction

If you’re a high-income earner, self-employed professional, or business owner, July isn’t just about beach trips and barbecues—it’s prime time for a mid-year tax projection.

Unlike generic year-end tax prep, a mid-year projection based on actual income gives you clarity and control. Whether your income is stable or fluctuates due to bonuses, commissions, or equity comp, this is your chance to avoid surprises and implement real tax-saving strategies before the clock runs out.

In this step-by-step guide, we’ll walk you through exactly how to run a mid-year tax projection using your actual income to date. We’ll also share the common pitfalls to avoid—and when to bring in a tax pro.

Why Mid-Year Tax Projections Matter

Here’s what a mid-year projection can do for you:

• Avoid underpayment penalties by adjusting estimated tax payments

• Plan for major expenses like Roth conversions or charitable giving

• Maximize tax-advantaged contributions to HSAs, IRAs, 401(k)s, and more

• Account for big income changes—raises, RSUs, side hustles, etc.

• Get ahead of tax season so you're not scrambling in April

If you're a high earner or have unpredictable income, this is not optional—it's a must.

Step 1: Gather Your Financial Data

To project your tax liability accurately, you’ll need:

Year-to-date income (W-2s, 1099s, self-employment, rental, etc.)
Paystubs through June or July (for employees)
Business profit & loss (for sole proprietors, LLCs, S-corps)
Investment income (dividends, interest, capital gains)
Contributions made so far to HSAs, IRAs, 401(k)s, etc.
Itemized deductions (if applicable—think mortgage interest, medical bills, SALT taxes)
Quarterly estimated payments already made

• 💡 Pro Tip: If you use software like QuickBooks, Gusto, or a payroll platform, exporting this data takes minutes.

Step 2: Annualize Your Income

You’ve got the first half of the year—now it’s time to estimate the second half.

Option A: Simple Annualization
Just double your year-to-date income. This is fine for salaried employees with predictable pay.

Option B: Customized Forecasting
If you expect income to spike (e.g., bonus, stock options vesting) or drop (e.g., unpaid leave), adjust your forecast accordingly. Many creators, consultants, and business owners prefer this method.

Step 3: Estimate Your Tax Deductions & Credits

Now factor in what you're not taxed on:

• Above-the-line deductions (HSA, SEP IRA, student loan interest)

• Itemized vs. standard deduction (choose the higher)

• Tax credits (Child Tax Credit, education credits, etc.)

This step is often overlooked—but it can make a huge difference in your projection.

Step 4: Run the Numbers

You can use one of these methods:

Option 1: IRS Tax Withholding Estimator

https://apps.irs.gov/app/tax-withholding-estimator
Great for W-2 employees with some side income.

Option 2: Tax Projection Software

Use tools like:

• TaxCaster

• SmartAsset (basic estimators)

Option 3: Work with a Pro

If you have multiple income streams, own a business, or want to actually optimize—not just project—your tax situation, a CPA or EA can create a customized tax strategy.

Step 5: Adjust Your Estimated Payments (if needed)

If your mid-year projection shows you’re going to owe more than expected, you still have time to fix it.

• Update Form W-4 with your employer

• Increase Q3 or Q4 estimated tax payments (due Sept 15 and Jan 15)

• Shift deductions or defer income to manage your liability

📌 Remember: The IRS expects you to pay either 100% of last year’s taxes or 90% of this year’s projected liability to avoid penalties.

Step 6: Use It to Plan Strategically

Now that you have a realistic projection, ask yourself:

• Should I accelerate or defer income?

• Can I front-load retirement contributions to lower this year’s bill?

• Is it the right time for a Roth conversion, gifting strategy, or harvesting losses?

The goal here isn’t just tax compliance—it’s tax strategy.

Common Mistakes to Avoid

❌ Relying only on last year’s return
❌ Ignoring state taxes
❌ Forgetting equity comp like RSUs or stock options
❌ Missing out on tax credits you actually qualify for
❌ Skipping projections because “it’s too early”

Final Thoughts: Tax Clarity = Financial Confidence

Doing a mid-year tax projection based on actual income is like checking your GPS mid-road trip. You’ll know where you’re going, avoid detours, and have a chance to take the scenic (i.e., strategic) route.

If you’re not sure how to pull it all together—or want someone to run the numbers and craft a custom plan—this is what we do every day at Spark Tax Advisors.

Let’s make the rest of this tax year work in your favor.

Ready for Peace of Mind?

Book a Mid-Year Tax Strategy Session today and receive a custom playbook based on your actual income, current withholdings, and future goals.

👉 Schedule Your Consultation Now

FAQs

Q: Is a mid-year tax projection only for business owners?
A: Nope! Anyone with fluctuating income—think bonuses, commissions, freelance gigs, or investments—should consider it.

Q: When is the best time to run a tax projection?
A: Mid-to-late July is ideal. You'll have 6+ months of actual data and enough time to make strategic changes before year-end.

Q: Can I do this myself with TurboTax or online calculators?
A: You can estimate, yes. But for multi-state filers, equity comp earners, or those with high income, working with a pro ensures accuracy and strategy.