4 Ways To Prepare For Tax Season
Now that the new year is here, it’s time to get started on tax season preparation. If you wait until April to start working on your taxes, you’ll be hard-pressed for time to get everything properly submitted and completed. To get yourself ahead, take note of these 4 ways to prepare for tax season.
- Gather Your Tax Documents
To file your income taxes for the year, you’ll need to gather all of the relevant documentation to help you fill out the tax return. Some of the documents you will need are:
- A copy of the previous year’s income tax return for reference of what deductions and credits you took advantage of.
- If you are a full-time or part-time employee, you’ll receive a W-2 that outlines your income from your employer that year.
- If you were self-employed or freelanced, your clients will send you a 1099 that details the amount of money they paid you for the year.
- If you have a mortgage, you’ll receive a form 1098 that shows the amount of mortgage interest that you paid throughout the year.
- If you earned any income from dividends, distributions from investments, or investments that earned a profit, you will receive a form 1099-DIV.
- If you have student loans, you’ll receive a form 1098-E which includes information on the amount you have paid in student loan interest during the year.
- If you’ve contributed to an individual retirement account (IRA), the bank or brokerage firm that services your IRA will send a form 5498 on the amount that you contributed throughout the year.
- Decide On Your Filing Status
There are five different filing options that the Internal Revenue Service offers:
- Single
- Head of Household
- Married filing jointly
- Married filing separately
- Qualified widow/widower with a dependent
The three that can be the most difficult to decide on using are head of household, married filing jointly, and married filing separately. Below is more information about who may use these filing statuses.
If you are unmarried but have paid at least half the cost of housing and living expenses for at least one other person for more than half of the tax year, you qualify for head of household.
Married couples can file jointly or separately. There are certain situations in which filing separately could be a great option: if you are high-income earners, one spouse has deductions they can take advantage of, if you're in the process of a divorce, or if one spouse has tax issues.
- Max Out Your IRA Contributions
Up until the income tax filing deadline, you can contribute to your IRAs and have your contributions applied to your tax return. To maximize your retirement savings, aim to reach the contribution limit for the year. For 2024, the IRA contribution limit is $7,000 if you're under the age of 50, with a $1,000 catch-up contribution available for those 50 years old and older.
- Decide On A Tax Preparer
Filing your taxes on your own can be time-consuming and frustrating, especially if you had many different life changes happen in the past year. A tax preparer or Certified Personal Accountant (CPA) can prepare and file your taxes on your behalf. Be sure to contact them early in tax season so they have the time to help you and don’t have to charge an extra fee.
If you are having trouble preparing your documents for tax season, our team at Total Clarity Wealth Management are here to help! We can sit down and discuss the best ways to prepare for tax season. Schedule a consultation with us today to get started.
Sources:
https://www.nerdwallet.com/article/taxes/how-to-choose-tax-filing-status
https://www.bankrate.com/taxes/tips-for-filing-taxes/
