Although Connecticut taxpayers have until April 15, 2024, to file a 2023 calendar year return, the Internal Revenue Service started processing returns in January. The conventional wisdom surrounding filing taxes breaks two ways. If you owe the state and federal government money, there's no harm in waiting to write that check. But if you are owed a refund, the sooner you file, the sooner you'll have extra cash. Regardless of the timing you choose, reducing the stress of filing taxes is always welcome. Read below for tax filing preparation tips to help avoid feeling overwhelmed.
7 Tips to Prepare for Filing Taxes
Preparing for tax filing requires earners to get all their ducks in a row. Employers are required to provide a W-2 by January 31. Those who made more than $600 can also expect a 1099 form to be sent out by the same date. The more prepared and organized you are, the earlier you can file. Below are 7 helpful tips that can minimize the stress of preparing to file taxes.
*The information provided in this tax blog is for general informational purposes only. It is not professional tax advice. Tax laws are subject to change, and individual circumstances vary. Readers should consult with a qualified tax advisor before making decisions based on the information provided in this blog.
1. Organize Tax Paperwork
Most information needed to file a tax return is about yourself and your family members. Consider starting a folder that includes the names, birth dates, and Social Security numbers of those included in this year's tax filing.
Although creating a digital folder on a home computer or device is usually more convenient, it may be wise to print sensitive personal identity information and maintain a hard copy in a paper folder. Hackers troll the internet looking for precisely this type of data. You can use this same folder to store any paper statements received until you have time to scan them.
Income Received
- W-2 form(s)
- 1099-G unemployment income, or state or local tax refunds
- 1099-NEC or 1099-K for any independent contract work
- 1099-R IRA/pension distributions
- 1099-S for income from the sale of a property
- 1099-INT, -DIV,-B, or K-1s for investment or interest income
- SSA-1099 for Social Security benefits received
- Alimony received
- Taxable Health Savings account distribution
- Additional income may include business, real estate rental, stock options, gambling winnings, jury duty payments, scholarships, cancellation of debt, prizes, and awards.
Income Adjustments - Consult your tax advisor to see if any of the following adjustments can lower the amount of taxes you owe or increase your refund.
- Alimony paid
- Form 1098-E student loan interest paid
- 1098-T tuition paid
- Teachers: Canceled checks or receipts for classroom supplies, etc.
- IRA contributions
- Receipts for qualifying energy-efficient home improvements such as solar panels, windows, furnaces, etc.
- Medical Savings Account (MSA) contributions
- Self-employed health insurance payments
- Moving expenses
- Keogh, SEP, SIMPLE, and other self-employed pension plans
Deductions and Credits - The following deduction and credits could also reduce the amount of taxes owed, resulting in more money in your pocket. Be sure you have the documentation to back it up.
- Childcare provider's information
- Form 1098-T education expenses
- Adoption records and expenses
- Forms 1098 for mortgage interest, PMI insurance, and points paid
- Investment interest expenses
- Charitable donation receipts
- Casualty and theft losses
- Medical and dental expenses
- State and local income taxes paid
- Real estate taxes paid
- Personal property taxes
- Vehicle license fees
- Rental property income and expenses
- Revenue from IRAs, stocks, rentals, and other types of income
- If self-employed, business use of home expenses
- Miscellaneous deductions, including union dues and unreimbursed employee expenses (uniforms, supplies, continuing education, travel, etc.)
2. Decide Who Will Prepare and File Your Taxes
Filing taxes can be challenging. The IRS forms found at local post offices, libraries, and other locations have step-by-step instructions. Online platforms also streamline the process and expedite your tax filing electronically.
If your taxes are complicated or you've undergone significant life changes that impact your finances, it may be worthwhile to contact a local CPA. There are usually chain outfits with extended hours during the tax season, and organizations such as AARP offer free or low-cost services for eligible seniors. The essential point is that a wide variety of resources are available if needed.
If you decide to use a tax preparer, schedule your appointment early. You want to ensure the preparer has time to review your documents and request additional information from you. They'll need time to prepare and file to avoid having to request an extension
3. Watch Out for Tax Return Scammers
Tax Return Preparer Fraud not only puts your refund at risk, but also your identity and financial reputation. Did you know that no matter who prepares your taxes, you are responsible for all the information on your return? If the IRS identifies errors and assesses additional taxes and interest charges, as well as possible penalties, it will be you, the taxpayer, not the tax preparer held responsible.
Don't use a tax preparer who:
- claims they can obtain larger refunds than other preparers,
- base their fee on a percentage of the amount of the refund,
- refuses to sign your tax return or provide you with a copy of your return,
- refuses to provide you with their Preparer Tax Identification Number (PTIN)*, or
- asks you to sign a blank or partially blank form.
*A PTIN is only required for professional tax preparers that accept payment to prepare tax returns.
4. Understand Qualified Deductions and Credits
In terms of lowering your tax liability, there's some good news from the IRS. The standard deduction for married people filing jointly increased by $800 from the previous year to $25,900. Single people filing taxes can anticipate a bump of $400 to $12,950; the same holds true for married individuals filing separately. For heads of households, the standard deduction went up $600 to $19,400 for the tax year 2022, according to the IRS.
Low to moderate-income workers and families (with and without children) can get a tax break if they qualify for the Earned Income Tax Credit (EITC.) Qualifying families with three or more children could earn the maximum EITC amount of $6,935. Other deductions are available to help working families keep a little more of their hard-earned salaries. Before completing your tax filing, thoroughly investigate applicable deductions and credits. You can start with the deductions and credits listed in Tip #1 above, as well as consult with your tax preparer, or visit IRS.gov for more details.
5. Make Sure Beneficiary Designations are Up to Date
The primary reason people change beneficiary designations stems from major life changes. Getting married, divorced, losing a loved one, or the birth of a child may not necessarily alter your tax filing situation this year. However, updating these designations can substantially impact your heirs' future tax liability.
6. Research the Latest Tax Laws
Significant changes have been made to the tax code in recent years. The Tax Cuts and Jobs Act of 2017 capped mortgage interest, business expenses, and other deductions. By that same token, the measure raised standard deductions and child tax credits.
The recently passed Inflation Reduction adds incentives for people who invest in energy efficiency. For example, home improvements that reduce utility bills and lower a property's carbon footprint may be eligible for rebates.
If you prepare your own taxes, researching changes to tax laws could save you a lot of money. To take advantage of tax breaks and minimize how much you pay in taxes, make sure you understand what's new and where to enter the information on the forms. If you hire a tax preparer, this knowledge will also give you the background to understand how they completed your return.
7. Don’t Procrastinate When Filing taxes
Deciding when to file your taxes is important, and filing early has benefits.
If you are unsure whether you will owe taxes, advance preparation will provide you with the amount you'll need to pay. On the flip side, if you are due a refund, why not get it early and pay off debt or start earning interest on these funds?
Fraudsters may take advantage of individuals who procrastinate filing their taxes. They may use your identity to file a tax return and receive your refund check. Avoid this happening to you - file early.
Procrastinating until the last minute to file your return leaves little time to locate missing documents or double-check your figures which could lead to missing IRS deadlines and result in unnecessary penalties.
Get a Head Start on Tax Season Today!
At Finex Credit Union, we understand that filing taxes may not be on anyone's list of enjoyable activities. It takes time and effort to organize documents, find a tax preparer or prepare taxes yourself, and review and understand new tax rules and regulations.
We hope these tips will help make filing taxes this year and years to come stress-free.
