Tax season has come back around again, and that means it’s time to collect materials and file to see what your refund will look like. If you’re like most Americans, you probably don’t have every piece of documentation on your desk and ready to go; be sure to start there and work your way through our list of tax tips.
Read Through
The first thing you should do each tax season is to assess your filing situation; depending on how you will be filing, download and print any documents you will need to fill out. Make sure that you download the correct documents for the year you are filing – failure to do so can flag you for an audit or decrease your refund amount. Familiarize yourself with this year’s documents and sections; reach out to a tax professional with any questions.
Review Last Year’s Deductions
Pull up your previous year of tax documents; what deductions did you claim? Can you claim the same deductions this year? If the same deductions aren’t applicable, you may be eligible for others. Don’t forget to deduct charitable donations and student loan interest!
Standard or Itemize?
Generally speaking, it’s better to take the time to itemize and compare your results. If you’ve already spent the time saving and organizing receipts, why not run an itemization and see what you’d get? If, after all, the standard deduction is more than your itemized figure, go ahead and take the standard.
COVID-19
There have been many impacts from the pandemic that began in 2020; if you were affected, take the time to review all of the tax implications from any benefits or stimuli that you received.
Investment Accounts
The contributions you make to your Health Savings Account and IRAs are not taxed like the rest of your earned income that goes towards products, services, and utilities. If you are financially able, make the maximum contributions to these investment accounts in order to maximize your refund.
Clever Timing
Since your student loan interest and mortgage interest are tax-deductible, it may be in your best interest to pay January’s statement in December. If you decide to do this, don’t forget to save your receipts – this is true for any tax-deductible item.
You may also consider making charitable donations at the end of December to help bring down your tax burden. If you have expendable income, you can choose where it goes – remember that this end-of-year decision will have an impact on your taxes for the year.
Tax Credits
Many people make the mistake of thinking that deductions and credits are the same; this is not true. Deductions are reductions in the amount of income that is subject to federal and local taxes. You can reduce your total taxable income in a number of ways, but these are all separate from credits. Tax credits, on the other hand, are essentially free money from the government based on your personal situation.
The Child Tax Credit, for example, puts $2000 towards your refund if you have a child. If you don’t have kids but you are pursuing higher education, you may qualify for education credits. If you have any questions about what credits you qualify for, feel free to reach out to our tax professionals.
Here at NTRC Tax & Finance, we know that tax season can be stressful; try to focus on the potential for an amazing refund check to help you get through a couple of hours it might take you to submit your return. If you have any concerns or if you’d like us to help with this year’s taxes, don’t hesitate to give us a call or schedule a free consultation.