Tax Tips Before Filing Your Return

As the tax-filing season approaches, it’s important to get organized! This is especially true this year, as pandemic-related delays are still slowing the process for filing returns and getting taxpayers their refunds. Additionally, because of new complexities (such as Advanced Child Tax Credit payments and Economic Impact Payments), filing may be more complex this year for both taxpayers and their tax professionals. 

Allowing yourself ample time to gather the necessary information to file successfully can help you to stay on track. Ready to get started? Let’s review your “getting organized” checklist. 

Getting Organized

To get organized for tax filing, you’ll need to gather the following documents:

  1. Identification information. This could be your ID, SSN, or tax ID.
  2. Information about stimulus payments. If applicable, the IRS should send you an IRS Notice 1444. You may also receive an IRS Letter 6475. 
  3. Set up direct deposit with the IRS. In an especially chaotic filing year, you’re more likely to receive any tax refund owed to you in a timely manner if you apply for direct deposit.
  4. Dependent information. Any SSNs or identifying information required. You may also need childcare records, and the IRS Letter 6419 if you received Advanced child Care Tax Credit payments.
  5. Income records. You may have a Form W-2, or variant of the form of 1099 depending on if you are self-employed, retired, or receiving Social Security benefits. 
  6. Small business owner information. A record of expenses and gross revenue, business use of assets, and home office information are all applicable here. 
  7. Homeownership information. A Form 1098 for mortgage interest and real estate taxes, and any receipts from energy-saving home improvements can be leveraged as a tax deduction.
  8. Charitable giving. Gather any records or receipts you have from charitable donations in the past year. Include charitable mileage.

There are, of course, other documents you may need depending on your unique circumstances. For example, if you are a K-12 educator, you may be eligible to have any expenses for classroom supplies reimbursed. If you have had significant medical expenses, provide these as well. Speak with your tax professional to ensure you have everything you need to maximize your return. 

Contact Your Financial Team

Once you are as organized as possible, contact your financial team. Whether you work with a fee-only financial advisor, a CPA, or both, let them know you’re ready to file. With tax season being especially complex and busy this year, getting on their calendar well in advance is a good idea! They’ll appreciate you coming to the table with some of your documents already organized, and can help to guide you through anything else you may need. Remember: taxes are due on April 18th in 2022, unless you request an extension. 

Think Through 2021 Lifestyle Changes

Your financial team won’t be able to help you minimize taxes owed unless they’re up to date on everything happening in your financial life. For example, having kids or gaining dependents (like aging parents who you are now caring for), buying or selling a home, making improvements to your home, starting a business, or making large charitable contributions can all impact your tax situation. 2021 was a busy year for many, so it may be worthwhile to sit down and look back over the calendar to remember any major life changes or events that took place.

Another tip: with the delays in receiving refunds, consider making a payment in April by underwithholding no more than 10% of your current year’s liability, or applying refunds to the next tax year to reduce your withholding. In either event you will need a good estimate of your overall taxes and calculations to properly pay what you owe. This way, you may end up with more money to use all year long.

Max Out Contributions

You do have the ability to retroactively contribute to both your Health Savings Account (HSA) and your Traditional/Roth IRA. The deadline to contribute for the 2021 tax year is April 18th (the day taxes are due). So, if you want to reduce your taxable income further, this may be an option to pursue. 

Have Questions?

We are here to help! Schedule a call with us today to discuss how you can proactively plan to lower your tax bill next year through holistic financial planning. 

Wood Smith Advisors, a woman-owned Registered Investment Advisor (RIA), is a fee-only financial services firm that partners with its clients to simplify their financial lives. We focus on women, entrepreneurs, and individuals with complex financial situations, providing objective and competent advice, education and services to help them develop and build their businesses and reach their financial goals. We can be reached by clicking here.

"Finance Made Simple" blog posts are intended for educational purposes and not for specific advice. Each person’s situation is different. Consult your financial advisor for advice relating to topics discussed.

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