Even though Tax Day always lands in mid-April, it seems to sneak up on us every year.
Whether you're eager to get money you're owed on your tax return or just want to make sure you have all the documents you need, these six tips will help you get organized so that tax season for you is a little less, well, taxing.
1. Research tax deductions or credits you might qualify for
While most filers take the standard deduction (see below for more on that), you might save more money if you itemize your taxes. The only way to know for sure is to figure out what applicable deductions may reduce your adjustable gross income.
Many filers might be leaving money on the table because they don't realize what expenses qualify. Here are some categories you might not have thought of:
- State or federal tax credits for energy-efficiency improvements
- Mortgage interest
- The Earned Income Tax Credit (EITC)
- Child and Dependent Care Tax Credit
- Points you paid if you refinanced your mortgage
- Expenses related to starting a business or side hustle
2. Decide if you want to take the “standard deduction" or itemize your taxes
There are two ways to determine how to reduce your taxable income so you pay less. Once you've figured out what tax deductions, if any, you might qualify for in step 1, you can compare it to the “standard deduction," which is a set dollar amount that lowers your taxable income. (Refer to the IRS publication to see what the standard deduction is for your specific situation.)
If that standard deduction is more than you would accumulate by itemizing, you can simplify your tax accounting by using that sum. Otherwise, it might be worth the time invested to itemize and claim the tax deductions you deserve.
3. Gather all your paperwork
Once you've identified the credits or deductions you might be able to claim, start assembling all the documentation. Now is the time to figure out if you have everything required to easily file your taxes or if you'll need to start hunting down missing pieces while you have some time.
Here are the key items taxpayers should have ready, as applicable:
- W2s, 1099s, or other documents that show your income
- Letter 6419, which supports advance payments from the Child Tax Credit
- 1098 form from your mortgage lender or mortgage servicer showing how much interest you paid
- Any investment account statements that show your contributions and income
- Receipts related to your home business or side hustle
- Social Security benefit
- IRA contributions
- Childcare costs
- Proof of charitable donations
- Medical and dental expenses
- Other paperwork as applicable to your situation
4. Research tax preparation methods
The IRS estimates that about 70% of taxpayers qualify for its FreeFile service, which offers access to free tax preparation software, then helps you e-file for a faster return.
If your income is over $73,000, you can't use the FreeFile service, but you might still want to take advantage of a software program rather than do the math yourself. Now is the time to research available options to find the one that has the features you need.
If your taxes are more complex or you've started a new business and aren't sure what qualifies for a deduction, you might consider using a tax preparer. While it's almost guaranteed to save you time and stress, this can also save you money, as they might point you to credits or deductions you hadn't considered.
5. Figure out if you should adjust your withholding
While it seems exciting to get a tax refund, remember that's money you could have been using all year long. The ideal situation is not to owe money or get any back, so see if your withholding rate is at that perfect equilibrium. The IRS offers a handy calculator that can help you decide.
6. Get organized for next year
Are you finding that your tax documentation and files are in shambles? Now is the time to get organized for 2023, since one of the most challenging parts of getting your taxes ready is compiling all your documentation. And this step can cost you more than time – you can't claim deductions or credits if you don't have the appropriate paperwork, such as medical bills or receipts for charitable deductions.
Now is the time to turn over a new leaf and create a system to implement all year long. Getting started on your tax prep now means you can approach April dreaming of the upcoming spring thaw, rather than dreading the stress of tax season.
