Why do tax guidelines always feel overwhelming and confusing?
The word “taxes” just brings up feelings of anxiety, fear and frustration, no matter what tax brackets we are in or whether you are a single filer, married couple, married taxpayers filing jointly, head of household, or a dependent.
What if doing your taxes could be like a game where if you fill out the forms correctly you win the prize of hard earned deductions that drop your tax bill, or maybe a refund. Could this be – gasp – fun?!
It can be if we decide it is.
In this blog post, we are going to outline the easy steps the IRS gives us so you can start getting ready to file your taxes.
Steps You Can Take To Make Tax Filing Easier
The IRS released its “Get Ready to File Taxes” guidance list.
First on the list: make sure you have an online account.
#1 Create or Access Your Account Information From IRS.gov/account
The IRS recommends you create or access an online account at IRS.gov/account.
You can get tons of information, like the latest information available for the current tax year and more details about your federal income tax.
Some services include:
- View your tax owed, payments, and payment plans
- Make payments and apply for payment plans
- Access your tax records
- Sign power of attorney authorizations electronically from your tax professional
- Manage your communication preferences from the IRS
If you have not already signed up for an online account, don’t worry, it’s really easy. You’ll just need your government issued ID and be ready to take a selfie!
OK, so now that that is done, let’s move on to step two.
#2 Gather and Organize Your Tax Records
Get all of your ducks in a row so you can figure out your taxable income, abide by the internal revenue code, total tax you owe or are due as a refund, and do this right.
Nothing is more annoying than setting aside the time to do your taxes, only to be missing information and have to stop and go get it.
Wait to file until you have all of your tax records.
Things you may need:
- Forms W-2 from your employer(s)
- Forms 1099 from banks, issuing agencies and other payers including unemployment compensation, dividends, pension, annuity or retirement plan distributions
- Form 1099-K, 1099-MISC, W-2 or other income statement if you worked in the gig economy
- Form 1099-INT if you were paid interest
- Other income documents and records of digital asset transactions
- Form 1095-A, Health Insurance Marketplace Statement, to reconcile advance payments or claims Premium Tax Credits for 2022 Marketplace coverage
- IRS or other agency letters
- CP01A Notice with your new Identity Protection PIN
Most income is taxable, even though it may not “feel” like income to you.
#3 Check Your Individual Tax Identification Number (ITIN)
As the IRS states, “An ITIN only needs to be renewed if it has expired and is needed on a U.S. federal tax return. If you do not renew an expiring or expired ITIN, the IRS can still accept your tax return, but it may delay processing it or delay tax credits owed to you, such as the Child Tax Credit and the American Opportunity Tax Credit, which can impact when you get your tax refund.”
If your ITIN wasn’t included on a U.S. federal tax return at least once for tax years 2020, 2021, and 2022, your ITIN will expire on December 31, 2023.
- ITINs with middle digits 70, 71, 72, 73, 74, 75, 76, 77, 78, 79, 80, 81, 82, 83, 84, 85, 86, 87, or 88 have expired.
- ITINs with middle digits 90, 91, 92, 94, 95, 96, 97, 98, or 99, IF assigned before 2013, have expired. If you previously submitted a renewal application and it was approved, you do not need to renew again.
#4 Make Sure You’ve Withheld Enough Tax
If you owed taxes or received a large refund when you filed, you may want to adjust your withholdings.
Life changes may mean changes in withholding.
The IRS has a friendly Interactive Tax Assistant who can help you answer any questions you may have.
#5 Sign Up For Direct Deposit
The IRS says the fastest way to get your tax refund is signing up for direct deposit.
What If You Don’t Have a Bank Account?
If you don’t have a bank account, don’t worry.
If you are a Veteran, see the Veterans Benefits Banking Program (VBBP) for access to financial services at participating banks.
OK, now that you have the basics organized, let’s move on to some other orders of business.
#6 Know Your Tax Deductions
You know how we all have our own expenses that our male counterparts don’t. Think about expenses like work clothes (yes, the new heels!), makeup, hair care, gym memberships, and childcare.
These are all deductions that are not typically covered by your employer. By logging all of your expenses, you will have a clearer picture of what you can claim.
A good way to keep track of this is using one credit card for all deductible expenses, then you can just look at the statement and grab your expenses.
You also will need to keep receipts for certain expenses.
Understanding Income Tax Rates
Income tax rates are percentages of your income that you pay to the government, usually on an annual basis. Income tax rates are typically progressive, meaning the percentage increases as your income increases. In the United States, there are seven federal tax brackets, with income tax rates ranging from 10% to 37%, depending on your taxable income.
It’s important to note, you don’t pay the same rate on all of your income, rather your income is taxed at different rates as it moves through the brackets.
For example, if you’re in the 22% tax bracket, you will pay 10% on the first portion of your income, 12% on the next portion, and 22% only on the income over the threshold for the 22% bracket.
It’s critical to understand your tax bracket as it not only determines how much tax you pay, but also provides insights into the potential tax implications of financial decisions.
Tax deductions play a pivotal role in managing your taxable income. Essentially, these deductions are specific expenses that you’ve incurred throughout the year that the tax system permits you to subtract from your total income, thereby reducing the amount of income on which you’re required to pay tax.
For instance, if your total income for the year is $60,000 and you have $10,000 in allowable tax deductions, your taxable income is decreased to $50,000. This reduced income means you’ll be paying tax on a lesser sum, consequently lowering your overall tax liability.
Understanding the nature and benefits of tax deductions can aid in strategic financial planning and potentially provide significant tax savings.
#7 Go Paperless
You already have your IRS.gov account we signed up for as part of our tax preparation. If you love saving trees and also want to save money, switch to e-filing.
Not only is it environmentally friendly, but it is also the fastest and most convenient way to file your taxes. Plus, e-filing is cheaper, and you get your refund much faster.
#8 Stay Organized
No matter what income tax brackets we are in, we want to keep it neat and tidy. Keep track of all your receipts, pay stubs, and invoices. By doing so, you are helping yourself in the long run and making the filing process a lot easier and smoother.
Find what works for you. Is it a folder in your email account where you just drag and drop anything tax related? Maybe you have paper receipts and you prefer to keep a bowl on your desk where you just drop these items and deal with them later.
Perhaps you would rather take a picture on your phone every time you get something tax related and keep it in an album.
Find the method that keeps you organized.
#9 Take Advantage of Tax Credits
Did you know that there are tax credits for women who qualify? Make sure you take advantage of all the credits offered.
Examples of tax credits for women include Earned Income Tax Credit (EITC), Child Tax Credit, and Dependent Care Credit. These credits can reduce the amount of tax you owe and even lead to a bigger refund.
New Information for 2023
- For 2023, the CTC is worth $2,000 for each qualifying child. A child must be under age 17 at the end of 2023 to be a qualifying child.
- For the EITC, eligible taxpayers with no qualifying children may get $600 for the 2023 tax year.
#10 Hire a Tax Professional
We know most of us have limited time, and taxes can be complicated. If you can afford it, hire a tax professional to assist you with your taxes. A tax pro is conversant with changes in tax legislation and can provide valuable advice on how to save on your taxes.
Hiring a tax professional can be a strategic move for multiple reasons. They possess in-depth knowledge of tax codes and regulations, which are often complex and continually changing.
This expertise allows them to identify potential deductions and credits that you may overlook, potentially saving you significant sums of money. Additionally, a tax professional can provide a level of accuracy that prevents costly errors and reduces the risk of an audit. If you have a complicated financial situation – you own a business, have made large charitable donations, or have high-value assets, for instance – their assistance can be invaluable.
They can also help you plan your financial activities with taxes in mind, potentially creating further savings down the road. Finally, hiring a tax professional saves you the time and stress associated with navigating tax filing on your own.
Usually what you pay a tax professional is worth avoiding the headaches that come with doing it incorrectly yourself.
There are also online tax preparers such as TurboTax, TaxAct, TaxSlayer, FreeTaxUSA, and Liberty Tax. These platforms provide a range of services from free basic tax filing to comprehensive professional tax services.
Free Tax Help
The IRS offers free tax help for those people who generally make $60,000 or less, people with disabilities, or limited English-speaking tax payers.
Other Free Tax Resources
- IRS2Go App: The Official app of the IRS provides tax tools and features right at your fingertips. You can check your refund status, make a payment, find free tax preparation assistance, sign up for helpful tax tips, and more.
- Volunteer Income Tax Assistance (VITA): The VITA program offers free tax help to people who generally make $57,000 or less, persons with disabilities, the elderly, and individuals with limited English proficiency who need assistance in preparing their taxes.
- Tax Counseling for the Elderly (TCE): The TCE program offers free tax help for all taxpayers, particularly those who are 60 years of age and older, specializing in questions about pensions and retirement-related issues unique to seniors.
- IRS Free File: The IRS Free File program lets you prepare and file your federal income tax online for free. The program is partnered with several tax software companies who provide their brand-name products for free.
Remember to always check the eligibility criteria for each resource to ensure it suits your particular needs.
You may also want to check locally with your state or your local library to see what kind of free tax resources they may offer.
Ladies, imagine how satisfied you will be when you file your taxes and check that off your list. Who knows, you may get a refund and use it to start a business, go on a long overdue vacation, or get something special for your kids.
In any event, filing taxes doesn’t have to be stressful. In this blog post, we covered tax tips can help simplify the process, and maybe even put a little extra cash in your pocket.
With these tips, you’ll be well on your way to getting your money right!