The 2023 tax season is approaching, and it’s time to start preparing. Of course, you have only a little time left, but if you’re like most people, the only way you can get everything done in time is if you start now.
The good news is that you can now do a few key things to ensure your taxes are filed on time and correctly. Here are five tips to get you started:
Organize Your Tax Documents
First and foremost, you must find and organize all your documents. Bringing all the papers together helps compile an accurate cover sheet also known as the form 1096 before submitting your returns. Click here to learn more about how you should go about it:
Keep records of all income and expenses as per the IRS requirement, including;
- Salary and Tips
- Dividend, and interest
- Alimony received
- Proceeds from property sales (such as stocks or real estate)
- Unemployment compensation
- Social Security benefits received
Secondly, ensure you keep all your receipts for all expenses. According to IRS rules, you can deduct certain costs from your taxable income if they are “ordinary” ones that are common among people in similar financial situations (for example, charitable donations).
However, there’s no rule saying how much documentation you must have. So not having receipts and all the required documentation could cause accounting headaches. Therefore, it’s best to keep everything now rather than risk forgetting later on when things get busy again!
Make Use of Deductions and Credits
Deduction and credit are terms used interchangeably in the tax world, but they have different meanings. A deduction reduces the amount of income you pay taxes, it doesn’t reduce your tax bill dollar-for-dollar, but it can still save you money. For example, if you bought a new car last year and paid sales tax on it, the state may allow you to deduct the sales tax from your federal income for that year (assuming your state has such a deduction).
On the other hand, credits are different: They reduce your overall tax bill dollar-for-dollar and are worth more than deductions.
Suppose you donated $200 to charity last year and have proof of this donation (such as a receipt). That donation could be worth up to $200 as an itemized deduction against your taxable income.
Make Sure You Have the Right Software and Hardware Ready to Go
You want to avoid putting yourself in a situation where you’re scrambling for the right software and hardware, or worse, having to call the IRS at the 11th hour because your computer crashed, and now you can’t file your taxes. We’ve all been there before, and it’s not fun.
To ensure that this doesn’t happen to you: make sure you have everything ready by January 1st at the latest. If you wait until February or March, it will be very difficult—if not impossible—to get everything done by then.
Be Aware of Major Tax Changes Affecting 2023 Returns
It’s important to be aware of major tax changes affecting 2023 returns. Here’s a summary of some key changes:
- The standard deduction is $13,850 for single filers, married but filing separately, $20,800 for the head of households, and $50,000 for married couples filing jointly
- The 2023 income tax brackets are also higher
- The child tax credit is now back to normal
- The Child Care and Dependent Tax Credit will be available to fewer filers
Start Early and Make the Process Much Easier
Starting early can make the tax return process much easier for you. If you get organized now, it will be much easier to find important documents later and avoid surprises at the last minute. The most important thing is to get started.