Tax Season Tips
Tax season is in full swing, and the April 15 deadline is less than a month away. Many people are still in the process of filing their taxes, or are wondering how to properly file them. Today we’ll be looking at some tax season tips to get you through the next month. Hopefully, by using these tips, you’ll be able to take advantage of the credits and deductions you may qualify for.
Tax Season Tips: Don’t Wait Until The Last Minute
At this point, it might be too late to urge you to start the process early. However, that does not mean I cannot encourage you to not wait until the filing deadline. Note that the deadline has returned to its accustomed slot on April 15. The extensions that were in place during the pandemic are no longer there. Ensuring that you start the process at a reasonable time minimizes the potential for mistakes due to a rushed filing. In addition, consider filing online, either yourself or through an expert. Depending on your income, you may qualify to get tax preparation software for free. You may also want to sign up for direct deposit, as that will expedite the refund process. Starting early also lets you figure out if you need an extension or not. For those who do, the extension runs six months, until October 15.
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Have Your Documents Ready
Before beginning the process, ensure that all the documents you need for your taxes are readily available. If you recall my previous article on financial planning tips, maintaining proper records is incredibly useful. For that reason, it shouldn’t be a surprise to see proper records appearing in an article about tax season tips. Examples of such documents include W9 or 1099 forms, receipts, or canceled checks, anything that shows income. Ensure that you have all of your documents before you begin the process.
Attempting to file in stages, or whenever you find another document, complicates the process. In addition, it also leaves you more liable to making mistakes, or skipping important steps in the process. Besides earned income, be aware that unemployment benefits are taxable. However, stimulus checks are not taxable. Winnings from gambling are also taxable, and also need to be included. Earned income from investments, whether that be equities, cryptocurrencies, or mutual funds, are also taxed.
Research and Claim Credits and Deductions
As I mentioned in a prior article, maximizing your deductions is an important goal in tax planning. There are many different types of deductions or credits that a person, or family, can qualify for. Did you switch to solar, or energy efficient, power? There’s a tax credit for that. Did you pay any mortgage interest or refinance? There’s a deduction for that too. Depending on income, you may qualify for the Child Tax Care Credit or the EITC, or both. Didn’t receive the third stimulus check? There’s a deduction for that as well. Did you start your own business or work a side hustle? There are deductions for that. Did you give to charity? Unlike previous years, standard filers will be able to claim a deduction for their philanthropic efforts.
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Update Your Status
Are you still filing as a single filer, or did you get married recently? Even if you did get married, are you filing jointly or separately? If you have children, are you still claiming them as beneficiaries, or are they now independent of you? Do you anticipate your status changing in the coming year? Meaning, do you expect to get married, divorced, or have children? Answering all of these questions, and updating your status accordingly, will change aspects of your tax filings. This might include credits or deductions, as well as your overall tax bracket.
Miscellaneous Tax Season Tips
Be wary of situations that either seem too good to be true, or that seem off. The IRS has made a note of tax scams that exist, and encourage people to be wary of. The IRS will never reach out and ask for private information, such as your Social Security Number. Do not click on links from email addresses you do not recognize. Do not send bank account information to someone you do not know over email, this is an extremely important tax season tip. If you are concerned, or believe that the action is illegitimate, contact your bank and credit union directly. If you get any correspondence from an institution, claiming to be the IRS or a bank, do not respond immediately. Your best approach is always to directly contact the institution through any of their official channels.
Tax season is the time of year that many Americans dread. Many TV episodes, cartoons, comics and other media have been made about it – and our general attitudes toward it. However, by following the tax season tips above, the process should be less difficult for you. At minimum, it should help you avoid any of the major pitfalls that you may have otherwise stumbled into.
About Gabriel Shabat
Gabriel Shabat is a writer who focuses on financial literacy and investing topics. He has been studying and talking about the markets for over seven years. Last year he became a part of the instructional staff at Boston University, teaching graduate finance courses as part of their Masters degree programs. When he isn’t working, he enjoys playing the guitar, working out and spending time with his loved ones.