3 Ways To Stay Ahead On Tax Season

The holiday high of good food, presents, and warm memories with loved ones has finally worn off, and we’re heading full-steam into springtime. That means longer days, fresh flowers, and warmer weather are ahead — but also Tax Day.

If you’re not careful, tax season can easily creep up on you, and you might be scrambling ahead of that April 18, 2023, deadline. Unfortunately, the longer you procrastinate on making Uncle Sam happy, the more stressful it will be to file a timely income tax return.

Taking the time to prepare properly for tax season will make the tax filing process smooth and, if done efficiently, will lay the groundwork for implementing a good strategy for years to come.

For almost 20 years, I have been helping individuals navigate this labor-intensive process and have compiled some best practices. Here are three ways to stay ahead this tax season.

1. Gather Your Documents

At the end of January and the beginning of February, you’ll start receiving all of your different tax documents. It’s important to keep these organized, which will make filling out and filing your tax return much more manageable.

There’s a variety of tax documents you might need to file properly, including:

  • W-2: If you are a full-time or part-time employee, you’ll receive a W-2 from each employer that indicates the income you received through the year and the tax withholdings already paid.
  • 1099-NEC: If you earned income from freelance or contract work, your clients should send you a 1099-NEC. If you earned less than $600 from a specific client, you may not receive a 1099-NEC — but you still must report that income to the IRS!
  • 1099-G: You’ll receive this form if you received any income from unemployment.
  • Form 1098: You will receive this form if you have paid any mortgage interest or student loan interest
  • Form 5498-SA: You’ll receive this form if you contributed to a Health Savings Account (HSA).
  • 1099-B: Expect this form if you have any capital gains or losses on your investments.
  • 1099-DIV: You’ll get this form if you earned any dividends, had profits from sales of collectibles, or other types of specialized distributions.
  • 1099-INT: Similarly, you can expect a 1099-INT if you earned interest, like from a savings or money market account.

Please be sure that when you are filing taxes yourself or taking them to a trained professional, you have as many of your documents readily available. The more information you have, the bigger the picture the tax preparer sees. This is extremely important when looking for write-offs and deductions.

2. Lower Your Tax Bill

Although we are well into the new year, there are several different accounts to which you can contribute where the contribution is treated as though it was made in the previous year.

For example, suppose you have a Traditional Individual Retirement Account (IRA) and did not meet your annual contribution limit for 2022. In that case, you can still contribute up to the maximum limit until the Tax Day deadline of April 18, 2023. For Roth IRAs, you would not see a current-year tax deduction but can potentially reap significant tax savings during retirement. The IRA contribution limit for 2022 was $6,000 (2023 is $6,500), with a $1,000 catch-up contribution for people aged 50 and up.

Another option is to contribute to your HSA; if you did not meet the contribution limit, you could still contribute until the tax day deadline. For 2022, the contribution limit for an individual plan was $3,650 and $7,300 for family plans, with a $1,000 catch-up contribution if you are 55 or older.

3. Plan Ahead For A Tax Refund

If you’re expecting a refund from the IRS, it’s crucial to have a plan for spending your tax refund so the money can be put to good use.

For example, you could use it to create or boost your emergency fund, pay off debt, contribute to your retirement accounts, or make a down payment on a home. The key to using your tax refund wisely is to find the most impactful way to apply it while making progress on your financial goals and well-being.

Need Help With Your Taxes?

Tax season can be extremely stressful. Enlisting the help of qualified financial professionals can relieve stress — and it’s nice to have an expert on hand when questions arise. Please let our team at Felton & Peel Wealth Management help you during this tax season. Get assistance early by scheduling a consultation with us today.

Malik S. Lee, CFP®, CAP®, APMA®
Malik Lee is the Managing Principal of Felton & Peel Wealth Management. A CERTIFIED FINANCIAL PLANNER™ with more than 15 years of financial services experience, he is a Guest Lecturer at Morehouse College, serves on the CFP Board Council of Examinations, and is a Board Member for the FPA of GA.
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