It’s that time of year again TAXES! Let’s discuss how to prepare for a successful tax season!
Some people love doing them while many of us dread this time. I fall into the ugh I must do this category. It took me several years to finally get organized with a system of paperwork and documents. If you are like me and stress about doing it yourself, get a tax professional or a good software tax filing software.
Here are some top tips to make this year a little less stressful.
1. Gather your Documents
You should receive all the tax documents you need from your employer or employers as well as from banks, brokerage firms, and others with whom you do business by the end of January. Check to make sure you received everything.
The better organized your records are, the less time it will take a preparer to process your taxes, which translates into lower fees for their service.
2. Locate Your Receipts
The receipts you’ll need to provide as documentation for your deduction. You’ll want to choose whichever produces the bigger write-off, but the only way to know for sure is to add up your itemized deductions and compare the result with your standard deduction.
3. List Your Personal Information
You probably know your own, but do you know the Social Security number of each dependent you claim? You’ll want to jot those down.
If you own a vacation home or rental property, for example, note the addresses. If you sold a property in the past year, note the dates you bought and sold it, the amount you originally paid for it, and how much you received from the sale.
4. Adjustments
The adjustments to income, also known as line deductions, help you lower your tax burden by reducing your total income. Here are some examples:
- Student loan interest (summarized in Form 1098-E)
- IRA contributions
- Energy credits
- Records of educator expenses
- Records of alimony paid
- Retirement plan contributions
- Health savings account (HSA) contributions
- Premium payments for health insurance if you’re self-employed
5. Tax Deductions and Credits
To help lower your tax burden, the government offers several deductions and credits. Make sure you have all your receipts/documents.
- Mortgage interest summary (Form 1098)
- Medical and dental expenses
- Child care expenses, including the name, address and Tax ID of your child care provider
- Adoption costs
- Tuition expenses for dependent children (Form 1098-T)
- Charitable contributions, including cash and non-cash donations
- Theft losses and casualty
- Record of business use for home office deductions such as the square footage calculation, utility expenses, the date you started using the space for a home office
6. Refund
If you expect a refund here are several options for you
- You can apply some or all the refund toward next year’s taxes.
- The government can deposit the refund directly into your checking or savings account. Great way to build up your emergency fund.
- You can contribute some or all your refund to certain types of accounts (IRAs, health savings accounts, education savings accounts)
- Buy U.S. savings bonds through TreasuryDirect.gov
Final Thoughts
Getting organized ahead of time really does help. If you have time look at the IRS’s website for any other information like tax bracket changes, tax code changes and anything else new for the year. Also, if you go to a tax professional ask questions along the way see what you can do better or how to increase credits/deductions for the next, year. Last filing day is Monday, April 17, 2023