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Easy Steps to Simplify Tax Season
February 1, 2023 by Spectrum Credit Union
Tax season may not be the most exciting time of the year, but it is one of the most important to your personal finances.
Rather than wait until the last minute — and stress yourself out come Tax Day — you can make this April go smoother by planning in advance now. Plus, you may still have some opportunities to lower your tax burden if you act quickly. Take these steps to get ready:
Get your paperwork together
Whether you choose to file digitally, hire a pro or mail in your tax forms, you’ll still need to get your records in order ahead of filing.
Be sure to store and save these important tax documents:
- W2 information from your employer
- Forms 1099 from contract, self-employment or freelance work
- Form 1099-INT if you paid interest
- Form 1095-A if you used the Health Insurance Marketplace
- Real estate info and mortgage payment statements
- Retirement and investment account information
- Child support, alimony and divorce decree documents
- College tuition payments and educational expenses
While you can opt for an old school filing cabinet setup, storing your information electronically will give you quick and easy access for years to come. To keep your confidential information safe, take advantage of encrypted data features and password locking on both your own device and cloud storage.
Organize your income
You’ll also need to gather any income you have earned in the last year. Keep in mind, the Internal Revenue Service largely considers any financial gains you’ve made as income, so you may need more than your W2 or 1099 forms to keep track of it all.
Taxable income is typically considered:
- Wages, including tips, bonuses and commission
- Alimony payments
- Investment dividends
- Capital gains (such as from selling stock)
- Unemployment compensation
- Social Security payments (in some cases)
It’s important to remember not all your income is taxable. The government does not consider these sources taxable:
- Child support
- Federal tax refunds
- Welfare payments
- Workers’ compensation
Prepare to itemize your deductions
Often, taxpayers opt for the standard deduction to keep their taxes simple. For 2022, the standard deduction for married couples who file jointly is $25,900. For single filers and married couples filing separately, the deduction is $12,950.
By opting for the standard deduction, you will see your tax burden lower. However, it may be in your best interest to spend some time calculating your deductions ahead of Tax Day to see if you can lower your tax bill even further.
Not sure what deductions you qualify for? A certified tax professional can help you sort it out and maximize your deduction potential.
Double check your withholdings
If you think you may end up owing the IRS money in April, there isn’t much you can do about your 2022 taxes now, but you can make adjustments to save yourself from the same headache next year.
First, visit the IRS’ Tax Withholdings Calculator. By filling out this simple form, you’ll be able to estimate if enough (or too much) is being withheld from your paychecks. You’ll also be able to estimate how much you may owe (or get back) next year.
If the numbers don’t line up for you, consider adjusting your withholdings. Typically, you just need a revised W2 on file with your employer.
Decide how to file
When it comes time to file, you can opt to complete and file your taxes alone or use a tax professional.
For the 2022 tax year, if you have an adjusted gross income of $73,000 or less, you can use the IRS’ Guided Tax Preparation for free. You can also opt to fill out your forms solo without charge. However, keep in mind that more complex tax options — particularly if you choose to itemize — can be more complicated.
Alternatively, you can hire a tax pro to review and file your taxes. Many taxpayers opt to hire a professional to make sure they’re taking advantage of all deductions and available programs.
You can also use guided software such as H&R Block or Intuit TurboTax. These programs walk you through your tax prep, find common deductions you may qualify for and often offer the option to talk to a tax professional at a discount if you need more help.
This year, Spectrum Credit Union is offering a discount for our members on tax solutions to make filing simple. By preparing now and taking advantage of your filing discounts ahead of Tax Day, you can save yourself money and stress.