Written By: Rashon Howard & Blake Szymanski
Preparing for tax season is the most nauseating part of the year’s first three months. The stress of having to collect documents and wait for W-2 and 1099 while also having to relocate or identify business expenses. All while trying to figure out who or how we should file our taxes. Most of our anxiety around the season stems from a lack of knowledge, so let’s take some of the pressure away.
Here are 5 essentials you should know and prepare for during tax season:
1. Important Dates:
The first important date to remember is April 18th for many reasons. This is the deadline for most taxpayers to file their tax returns by midnight. If you cannot file on time, that is perfectly OK, as you can request an extension to delay your deadline back to October 16th. Another essential factor to consider about April 18th is the last day to make an IRA contribution for 2022. This applies to Traditional and Roth IRAs that have yet to be maxed out.
As a business owner, you must make quarterly tax estimates to the IRS. Here are the dates you need to remember as you file your estimates.
- April 18th – First Quarter
- June 15th – Second Quarter
- September 15th – Third Quarter
- January 17th – Fourth Quarter
2. What Tax bracket do you fall in, and how does that bracket impact your ability to get a return or owe less money:
There are 7 (seven) tax brackets: 10%, 12%, 22%, 24%, 32%, 35%, and 37%
It’s important to note that each tax bracket represents how much you will pay for each portion of income earned. The income range in each tax bracket also changes based on your tax application (single, married filing jointly, married filing separately, head of household). Many factors can affect what tax bracket you eventually fall under, discussed later in the credits and deductions section, including your standard deduction.
For example, if you make $100,000 for the 2022 tax year, are married, and file jointly, you would pay 10% on the first $20,550, 12% on the next $63,000, and 22% on the final $16,450. You would only pay 22% for part of the $100,000 of your annual income.
Here are the tax brackets and the corresponding income ranges.
3. What items should you gather in advance?
To ensure you are well prepared for the upcoming tax season, it is essential to remember that life constantly changes. Did you move to a different state, did your job or relationship status change? These events could happen throughout the year, and we need to be prepared well before the April 18th deadline. Along with life-changing events, you should also be collecting essential financial records.
Some important documents that you should be collecting throughout the year to ensure tax season goes smoothly include:
- Pay Stubs
- Receipts that could be written off or claimed as deductions
- Charity Donations
- Credit card and Bank Statements
- 1099 forms
- Mortgage records
4. Credits & Deduction Explained:
Tax credits and deductions are two different tax incentives that can help reduce the amount of taxes you owe. Tax credits directly reduce your tax bill, while deductions reduce your taxable income. Here are some of the most popular tax credits and deductions:
- Earned Income Tax Credit (EITC): can get you between $560 and $6,935 depending on how many kids you have, your marital status and how much you make.
- Child Tax Credit (CTC): This credit helps parents or guardians offset the costs of raising a child. For the tax year 2022, could get you up to $2,000 per child, with $1,500 of the credit being potentially refundable.
- American Opportunity Tax Credit (AOTC): This credit is available to undergraduate students in their first four years of college. The credit can be worth up to $2,500 per student, and up to 40% of the credit is refundable.
- Lifetime Learning Credit: This credit is for individuals taking courses to improve or acquire job skills. The maximum credit for 2022 is $2,000 per tax return.
- Saver’s Credit: This credit is designed to help low- and moderate-income individuals save for retirement. The credit is worth up to $1,000 for individuals and $2,000 for married couples filing jointly.
- Standard Deduction: The standard deduction is a set amount you can deduct from your income without itemizing your deductions. For the 2022 tax year, is $12,950 for single filers, $25,900 for joint filers or $19,400 for heads of household.
- Itemized Deductions: If your itemized deductions exceed the standard deduction, you can choose to itemize your deductions instead. Some standard itemized deductions include state and local taxes, mortgage interest, charitable contributions, and medical expenses.
- Student Loan Interest Deduction: If you paid interest on a student loan, you could deduct up to $2,500 in interest from your taxable income.
- Medical and Dental Expenses Deduction: If you paid for medical or dental expenses that exceed 7.5% of your adjusted gross income, you could deduct them from your taxable income.
- Home Office Deduction: If you work from home, you can deduct some of the expenses associated with your home offices, such as rent, utilities, and internet costs.
Always remember the rules for tax credits and deductions can be complex, so it’s essential to consult with a tax professional.
5. How can you ensure a smoother process for next year?
You can do several things this year to tighten up ahead of next year’s tax season.
Here are some tips:
- Keep accurate records: Throughout the year, keep accurate records of all your income and expenses. This includes keeping receipts, invoices, and bank statements.
- Know your deadlines: Know when your tax return is due and any other important deadlines. This will help you avoid penalties and interest charges.
- Get organized: Keep all your tax documents in one place so you can easily access them when it’s time to file your return. This includes W-2s, 1099s, and other tax forms.
- Consider hiring a professional: If you have a complicated tax situation, consider hiring a professional to help you prepare your tax return. They can help you navigate the tax code and ensure you take advantage of all available deductions and credits.
Following these tips can help ensure a smooth tax season next year.
#2023planning #taxreturn2022 #financialeducation
1. irs.gov (2023). Estimated taxes. Retrieved From Credits & Deductions for Individuals | Internal Revenue Service (irs.gov)
2. Orem, T & Parys, S (2023). 20 Popular Tax Deductions and Tax Credits for 2023. Retrieved From 20 Popular Tax Deductions and Tax Credits for 2023 – NerdWallet
3. Berry-Johnson, J & Wheeler, R (2022). Tax Prep Checklist: Everything You Need to File Your 2022 Taxes. Retrieved From Tax Prep Checklist: Documents to Gather Before Filing – Forbes Advisor
Registered Representative of, and Securities and Investment Advisory services offered through Hornor, Townsend & Kent, LLC (HTK). Registered Investment Advisor, Member FINRA/SIPC. 600 Dresher Rd., Horsham, PA 19044, USA. 800-873-7637, www.htk.com. HTK is a wholly-owned subsidiary of The Penn Mutual Life Insurance Company. 1847Financial is not affiliated with Hornor, Townsend & Kent, LLC
This information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal tax professionals for specific information regarding your individual situation. 5512367RG_Mar25