Savvy taxpayers view their income taxes as a year-round experience instead of a single event. While Tax Day 2022 may be over, some workers are preparing now to ensure they’re ready for the 2023 tax season.
Store Your Tax Return in a Safe Place
One of the most commonly cited tips to make tax filing easier is to get organized. This begins with your tax return. Place your tax return and tax documents in a safe place like a desk drawer where you’ll be able to organize them throughout the year.
Mark Steber, chief tax information officer at Jackson Hewitt, said there’s no overly complex organization system needed. Sometimes the shoebox or big brown envelope organization file works best.
Separate any documents you receive that might have tax implications into at least four different categories including income items, deductions, life changes and other. Organize documents into each file accordingly.
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Keep Track of Expenses for Deductions
As you organize any tax implication documents, it’s a good idea to start keeping track of business expenses you plan to deduct now.
Armine Alajian, CPA and founder of Alajian Group, said this not only saves you time, but potentially results in a larger refund. Use an organization system that works best for you and when it comes time to claim deductions on your tax return, these expenses will be easy to access.
Pay Attention to Tax Law Changes
2022 was a vastly different tax year than the last few years. Steber said next year there could be refund shock — or refund whiplash versus last year — when it comes time to file income taxes.
“At this time, 2022 has reverted back to the standard child tax credit amount and allocation — meaning there won’t be monthly payments or a larger credit amount — as well as no above-the-line charitable donation deductions, and unemployment income is fully taxable,” said Steber.
Another big tax law change impacts those that use third party apps, like Venmo and PayPal. Steber said they will now get Form 1099-K from a company if they received more than $600 on their platform. The IRS will also be given this information from the companies.
Ensure Accurate Tax Withholdings
Steber recommends confirming that you are withholding the correct amount from your paychecks.
“This can make a major difference on your tax return because if you withhold too little, you could risk owing the IRS come Tax Day or getting a smaller refund than you expect,” said Steber.
Taxpayers that experienced a big refund or tax bill in 2022 may update their Form W-4. If you’re not sure how to do this, you may ask your employer for assistance or consult your CPA or accountant for advice.
Steber said you can update your tax withholding amount at any time, not just during moments when you experience a significant life change such as starting a new job, getting married or divorced or having a child that you may claim as a dependent.
Update Small Business Financial Information
Do you own a small business? Alajian recommends keeping all of your financial information, like your profit and loss statement and balance sheet, up to date to make filing easier for yourself (or your CPA) during next year’s tax season.
Plan To File Early in 2023
If you filed a little too close to the Tax Day deadline in 2022, you can start planning now to file as early as possible in 2023. Don’t wait to file until the last minute, especially once you have all of the necessary information and documents.
“Filing early is the smart thing to do,” said Steber. “Not only because you’ll get your refund sooner — or more time to gather the money you might owe the IRS or state — but because it locks up your personal data and information, making it harder for tax theft.”
Contribute to Retirement
This filing prep advice isn’t necessarily tax-related, but it may affect your taxes. Beth Logan, EA at Kozlog Tax Advisers, recommends contributing to retirement.
Logan uses the example that you have a retirement program offered through your employer. You received $3,900 in your tax refund and are paid every two weeks. “If you take just half of that, $1,950, and split it into 26 pay periods, that is $75 you can contribute to your retirement,” said Logan.
If you do not have retirement at work, Logan recommends taking half of your refund and opening a Roth or traditional IRA. A Roth IRA is ideal for those in the 10% and 12% tax brackets while a traditional IRA is for 32% or higher tax brackets.
If you’re not already contributing to retirement, consider starting now. And if you received a large refund in 2022, put some of that toward your retirement account.
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