While doing your taxes always feels a bit tedious, these five tips can help you stay the course for filing your 2022 tax return.
#1: Utilize Technology
I always recommend working with an accountant or CPA. Still, if you are filing without the help of a professional, you will most likely find it beneficial to use one of the many tax preparation software available. Most will walk you down a structured path asking you for all of the information you need to input, and the software can populate the numbers for you. Utilizing software can help you streamline the process, which in turn can potentially speed up the time it takes to receive your tax return.
#2: Accuracy Over Speed
The key to getting ahead is getting started. Getting an early start on the filing process can allow you the time needed to go through your returns a number of times before mailing or e-filing. The IRS rules can change from year to year, so if you claim deductions, ensure you’re eligible under the current IRS rules.
Have a paper trail ready and in order so you can simply read from what you have in front of you. Take advantage of any automated systems that can import income, interest or dividends directly into your tax preparation software. Guessing is fine if you want to estimate your refund amount, but not when you report to the IRS.
#3: Report Everything
Life can be crazy and chaotic, you may have made several charitable contributions last year or had several different income streams. Perhaps you had a few investments that didn’t yield much. Whatever it may be, make sure you report ALL of this on your return.
Tax software will tell you when you’ve given enough or earned enough to affect the amount of taxes you owe. Always remember, it’s better to overreport than to leave things off your returns. The IRS has an exceedingly complex system to find those who underreport and they are likely to discover how much you’ve earned or received via reporting requirements. The odds are, they will know if you haven’t reported income.
#4: Choose Between Standard Deduction & Itemizing
The IRS allows a standard deduction amount for those who wish to simplify filing. For the 2022 tax year, the standard deduction amount is as follows:
- For Single Filers - $12,950
- For Married Couples - $25,900
- For Head of Household - $19,400 1
You can reduce the taxable amount on your return using the standard deduction. However, itemizing them may enable you to reduce your taxable amount even more. Some commonly used deductions include:
- State and local taxes
- Charitable contributions
- Casualty loss
- Business expenses for which you weren’t reimbursed
- Medical expenses
- Mortgage interest
If you Itemize, make sure you understand how the most recent changes in the tax code may have (or may not have) affected certain deductions.
#5: Understand Tax Credits
Tax credits are a dollar-for-dollar reduction in the amount of tax owed. It’s important to note that they do not reduce your taxable income or change your tax bracket as a deduction might.
An example of a tax credit is the Earned Income Tax Credit, this credit is specifically designed to help low- to moderate-income workers and their families receive some tax relief. If you qualify, you can use the credit to reduce the taxes you owe, which can potentially increase your return.2
According to a report by the Treasury Inspector General for Tax Administration, approximately 5 million potentially eligible taxpayers do not claim the credit each year, which results in about $7 billion in unclaimed benefits annually.3 To ensure you are not missing out on any opportunities, you should check for any tax credits you may be eligible for.
If you have any questions this year, be sure to speak with a CPA or other trusted tax professional regarding your situation. An experienced professional can answer your questions and empower you to start the tax season off with confidence.
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 | About the Author James M. Comblo, CFF is the President & CEO of FSC Wealth Advisors. His greatest passion in the financial services industry is helping clients live the life they want, not the life they are forced to. To learn more about him click here. |