April 2023 might feel a long way off, but the end of the current tax year is right around the corner — and if 2022 taught us anything, it’s that those who file first are first in line for refunds.
Your tax documents will start trickling in at the start of the new year, then the trickle will become a deluge. Now is the time to prepare for tax season so when you finally do have everything you need to get started, filing your returns will be simple, straightforward and, best of all, free from surprises.
Check Your Online IRS Account — Or Create One
If you haven’t already created a free account at IRS.gov, that should certainly be your first step. If you have an existing account, check in and see where you stand before you do anything else. Your IRS account is where you’ll find the most important and up-to-date information about your federal taxes, including five years of payment history and scheduled payments, amounts owed, details about any payment plans you set up, access to records and transcripts and all the key data from your most recent return.
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Brush Up on Changes for 2022
The pandemic forced many changes in tax year 2021, and in 2022, many temporary provisions expired, others didn’t and some new changes happened that had nothing to do with COVID-19 at all.
For example, the child tax credit changed in 2022, as did the child and dependent care tax credit, the earned income tax credit and the premium tax credit. This year’s tax brackets have been updated, as have long-term capital gains rates and the standard deduction. Those are just a few examples — the changes are many and the chances are good that some of them will affect you. Brush up now to avoid surprises in April.
Get To Know the Documents You’ll Receive and Submit
The IRS offers online versions of all the most common documents you can expect to receive, fill out and send when you file your returns. Before your mailbox and inbox receive the oncoming bombardment, take a moment to familiarize yourself with what’s coming.
Polish up on the particulars of forms that you’ll use, like Form 1040 and its variants, as well as common attachments like Schedules A, B, C, D and SE. You can also get reacquainted with forms that you’ll receive from your employer, bank or broker, like W-2, 1099 and the many 1099 variations.
Estimate Your Income and Withholdings
You haven’t yet received your official documents, but if you took on a side hustle or earned irregular income, now’s the time to take an unofficial inventory of what you brought in and what you’re likely to owe.
That includes unemployment payments, earnings from virtual currencies, gig economy income and refund interest. You were supposed to pay estimated taxes on any income that wasn’t subject to payroll withholdings. If you didn’t, start saving now to satisfy your tax obligations along with any penalties you might face for not making estimated quarterly installments. If your income is limited to a standard W-2-based paycheck, check your withholdings to make sure your employer set aside enough for the IRS so you don’t receive a tax bill that you weren’t expecting.
If You Haven’t Already, Sign Up for Direct Deposit
According to the IRS, eight out of 10 taxpayers receive their refunds via direct deposit. If you’re among the 20% who still wait for the mail carrier to bring a refund check, join the 80% who get theirs faster and safer. With direct deposit, there’s no chance of a check getting stolen, lost in the mail or going uncashed — the IRS issues nine out of 10 payments in 21 days and direct deposit recipients get theirs first. Just visit the IRS’ direct deposit page to learn how to get set up for electronic refund transfers.
Start Looking For Professional Help
The best tax professionals are in high demand and their schedules fill up fast. If you plan on enlisting the services of a CPA, a tax attorney or a similar professional, start researching, reading reviews and reaching out now to find out if they’re taking on new clients.
Even if you’re not in the market for an accountant, get ahead on familiarizing yourself with the many competing tax-prep software companies that you might use to file electronically. TurboTax, Taxslayer, H&R Block and the rest offer different price tiers with different capacities designed for different taxpayers with different needs. Don’t wait until the last minute when there’s no time left to shop for just the right one.
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