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It’s that time of year again–tax season. Whether you’re working on your state and federal returns now or want to be better prepared for next year, this blog offers tips for filing taxes without giving yourself these common tax-related headaches. From getting an early start to holding onto old returns, follow these tips to make the tax preparation process easier on you this year and in future years.
1. Set Aside Freelance Income
If you work as a freelancer or independent contractor, or if you earn income from an investment property, you should set aside a portion of that money in a separate account. You can make quarterly tax payments, but if you don’t, you’ll want to set that money aside to meet your tax bill without being caught off-guard.
2. Go Digital
Your tax documents and records may be split between paper and digital. Simplify your organization and storage system by switching to a digital filing system. This means scanning any physical documents and storing them in a folder system with the electronic documents you receive. Digital storage has the added benefits of making individual documents easy to find through search, categorizing, and tagging.
3. Start Preparing Early
Whether you’re doing your taxes yourself or getting help from a tax preparer, it’s best to get started as soon as you receive your W-2 or other tax forms. Create a dedicated folder for your tax forms and records. Once you have everything you need to file, start the process yourself or send your forms and records to your tax preparer. Getting an early start gives you plenty of time to meet the tax filing deadline. If any issues arise, you’ll have time to take care of them without scrambling.
4. Don’t File Too Early
While it’s good to start prepping your documents and files early, don’t file so early that you haven’t received all your tax forms yet. You could incur fees and delays if you forget to include something on your return.
5. File an Extension if You Need To
If you’re not able to file your taxes on time, it’s not the end of the world. You can file an extension so that you or your tax preparer can take as much time as you need to get your return done correctly. Remember that if you owe taxes, that payment will still be due as of the federal filing deadline.
6. Report Unemployment Compensation, 529 Plans, & HSA Accounts
While everyone knows to report their W-2 or 1099 income, there are some types of income and tax-advantaged accounts that are easy to forget.
If you received unemployment insurance income during the previous year, it counts as taxable income and must be reported.
If you are saving or paying for college with a 529 plan, qualified withdrawals are tax-free at the federal level but should still be reported along with contributions to the account. Some states also offer tax incentives to 529 plan holders–check with your tax advisor.
If you are enrolled in a high-deductible health insurance plan, you can save for medical costs in a Health Savings Account (HSA). HSAs offer triple tax benefits: contributions, qualified withdrawals, and any interest you earn are all untaxed. However, they must still be reported.
Finally, remember your tax-advantaged retirement savings accounts, such as 401(k)s and Individual Retirement Accounts (IRAs).
7. Double Check Your Math
If you’re filing your tax returns yourself, make sure to double-check all calculations to avoid any errors in your totals or deductions. If your financial situation is more complicated or you’re unsure how to calculate earned income credits, taxable benefits, and large deductions, then it may be best to get the help of a tax professional.
8. Look for Misspellings and Inaccurate Information
Make sure you’re spelling your name correctly, as it appears on your social security card, along with your spouse, if you have one, and any dependents. Enter your full legal name if you go by a shortened name or nickname. You should carefully enter all wages, dividends, interest, and other income numbers.
9. Choose the Right Filing Status
If your marital status has changed in the past year, or you’ve had a baby, your tax filing status changes, too. There are five choices for filing status: single, married filing jointly, married filing separately, head of household, or qualifying widow/widower. Make sure to choose the most accurate tax filing status. Using the wrong filing status can result in overpaying or underpaying your taxes, which are both problems you want to avoid.
10. Hold On to Your Previous Years’ Returns
Keep at least seven years’ worth of tax returns and documents. This is in case you need to file an amended return, or if you get audited.
SkyOne is here to help with tax season!
No one loves filing taxes, but it doesn’t have to be a painful process. Talk to a SkyOne financial counselor for guidance on your taxes. You can also open a Money Market or IRA to earn interest on your deposits and save for the future.