New year, new you, new ways to start thinking about how to save money, starting with your tax returns.
One of the smartest ways you can begin the year off in regard to your budget is by starting your tax prep early. The official deadline to file tax returns each year is known as Tax Day, which usually falls on April 15.
With careful planning and a strategic approach, you can uncover opportunities to enhance your financial wellness. Here are eight tips you can use to maximize your tax returns.
Check Whether You Need to Pay Taxes
There are many reasons why you may not have to pay taxes. If your income is below the IRS-defined filing threshold, you may not have to pay federal taxes. The threshold changes every year, and just simply using your company’s pre-tax deductions, like 401k, transportation benefits, HSA or FSA contributions, and others may bring your income under the threshold.
Check Whether You Can Write Off All Your Taxes
The United States tax code is essentially an incentives program for individuals and companies. If you know how to read and understand it, it’s one of the most powerful tools in the world for saving money. Unfortunately, it is thousands of pages long consisting of millions of words, so fully understanding it is pretty difficult. This is why large corporations employ entire law firms to do taxes. But if you look at the forms and codes related to your everyday activities, you may find that you don’t even need to pay as much as you thought. Tax prep software can greatly help when trying to find things you can write off on your taxes.
Organize Documents Early
Gather all necessary documents such as W-2s, 1099s, receipts for deductible expenses, and previous year’s tax returns. Organization not only helps in filing taxes accurately but also in identifying potential deductions and credits.
Understand Tax Deductions and Credits
Educate yourself on various deductions like charitable donations, home office expenses, and education-related deductions. Credits like the Earned Income Tax Credit (EITC) can also significantly reduce your tax bill.
Leverage Retirement Accounts
Contributions to traditional IRAs or 401(k) plans can reduce your taxable income. Understand the limits and consider increasing your contributions to benefit from this deduction.
Accurate Reporting of Income and Expenses
Ensure all income is reported accurately, including freelance or gig economy work. Also, keep track of all relevant expenses which can be deductible, especially if you are self-employed.
Stay Updated on Tax Law Changes
Tax laws can change yearly. Stay informed about any new tax reforms or changes that could affect your tax situation, such as adjustments in tax rates or changes in deductions and credits.
Plan for Next Year
Use this year’s tax return as a learning experience to make better financial decisions for the next year. Consider adjusting your withholdings or increasing retirement savings to optimize next year’s tax outcome.
The key to a successful and stress-free tax season lies in early and meticulous preparation. By implementing these strategies, from organizing financial documents to understanding the nuances of tax credits and deductions, you’re not just preparing for tax season – you’re setting the stage for potentially larger returns and a healthier financial future.
Remember, the world of taxes doesn’t have to be daunting. With the right approach and a proactive mindset, you can navigate this season like a pro. Embrace these tips and turn tax preparation into an opportunity for financial growth and peace of mind.
DailyPay, Inc. and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors.