Tips To Help You Prepare For The Tax Season
With the new year approaching, it isn’t a bad idea to start thinking about the ways you will handle the Federal tax return.
While several taxpayers are getting a hold on the tax laws and deductions, some remain unaware until it is the due date. An end-moment preparation of your tax return could mean a chance of missing out on the available deductions and benefits. This is why it helps to get familiar with the laws in time. In this article, we share a few tips to help you prepare for the tax season 2024.
Choose who will prepare and file the taxes
Those who have gone through major life changes in 2023, like a marriage, divorce, or starting your own business might find your taxes a little more complicated. Hence, you might want to work with a tax professional or a CPA to help prepare and file your taxes. Do not wait until the last week to make this decision because it could end up costing you. Several tax professionals charge a higher fee as the deadline approaches, and you do not want to end up paying more than necessary.
Try using tax software
If you are unhappy hiring a professional for your taxes and cannot do them on your own, you can consider one of the many tax software options available in the market. There are several free options, and they work with the IRS to help make the filing process easier and quicker. You can also check out the Volunteer Income Tax Assistance program which has IRS-certified volunteers for tax preparation services and will help e-file if you earn $60,000 or less in a year.
Ensure that the beneficiary designations are updated
Your beneficiary designations will not have an immediate impact on the taxes but they could impact the taxes of your heirs in the long term. Hence, the end of the year is a good time to review the beneficiaries and make the necessary changes. It can help reduce the taxes your heirs pay on your assets after you are no more. Life is unpredictable, and if something unexpected happens to you, it helps to have the designations lined up and well-coordinated so that there is no dramatic impact on those who receive your assets.
Bunch the deductions
You must be aware of the standard deductions and small business deductions if you are a business owner. You can consider bunching them to exceed the thresholds. Bunching happens when you time the expenses by pushing the deductible expenses into the same calendar year. It is done by prepaying a mortgage payment or pushing forward a charity donation. If you are claiming business deductions like wages, legal fees, insurance, or advertising expenses, you must know the available limits and have the necessary proof to make a claim.
Make the most of the retirement plan contributions
Taxpayers who have been stingy about funding employer-sponsored retirement accounts need to do themselves a favour and increase their contributions. The amount of money you put into these accounts will reduce the taxable income for the year and thus, reduce the tax bill. The amount will not be taxed until you withdraw it. You must be aware of the annual contribution limits and make the most of them. Those who cannot afford to make the maximum contributions should try to contribute an amount that will be matched with the employer contributions. You must think of the employer match as an instant return on the money. It is free money, and investing in it is a smart move.
Be aware of the tax scams
With the tax season inching closer, many people start to get emails, text messages, and phone calls from people who claim to be IRS. Be wary of them since it could be a scam. Do not respond to emails or calls from those who pretend to be from the U.S. Treasury or the IRS. They never call you on the phone. They will only use U.S. mail to get in touch with you. Do not be lured to work with a tax preparer who promises a bigger refund since it could be another scam. It is unethical for a professional to promise a higher refund. Shop around for registered tax preparers to help you with your return.
Being prepared for the tax season can be extremely helpful. If you do not file the returns when you owe taxes, you could end up with some serious penalties. Even if you ignore the IRS correspondence, you could end up losing and paying more money than you initially owed. Do not make the mistake of ignoring the IRS since they aren’t going anywhere and you will have to respond to them sooner or later.