Tax season is officially off and running. The IRS began processing tax returns for 2022 on Jan. 22. Although your personal tax filing isn’t due until April 18, there are actions you can take now to both maximize your refund and lower stress along the way. Compiling your documents and reviewing changes to tax laws now will be time well spent.

It takes the average American 13 hours to file their taxes, according to the IRS. That commitment can be stressful if you wait until the last minute to get organized. By spacing out your tax preparation efforts throughout the season, you’ll be better prepared to maximize deductions and have peace of mind.

1. Review what changed in your life in 2022 

A tax return can reveal a lot about someone’s life. What big events happened this year? Did you get married or divorced? Have a baby? Change jobs and now work in another state? All of this information can significantly impact the amount of taxes you owe and the information you’ll need to gather.

Reviewing last year’s filing can jog your memory and help you recall what documents to be on the lookout for again. For example, my bank usually sends two 1099-INT forms, which document the interest income my accounts earned last year. Most tax software, like TurboTax or H&R Block, will prompt you to include updated amounts from your 2021 tax forms. Still, it’s good to know what goes into your tax return and not solely rely on tax software.

2. Take advantage of last-minute opportunities

Even though 2022 is over, and most income and expense amounts are finalized, there are still a few ways to reduce your 2022 tax liability. 

You can contribute to or even open up an IRA for 2022 through April 18, 2023. For the 2022 tax year, the maximum contribution is $6,000 for people under 50 years old and $7,000 for those 50 and over. 

If you have a flexible spending account, or FSA, you can access that money until March 15 and roll over up to 20% of last year’s contributions into the current year. The 2022 cap for FSA contributions was $2,850, so this gives you up to $570 of your funds to use throughout this year. Additionally, the FSA contribution limit increased to $3,050 for 2023.

3. Self-employed? Don’t forget to deduct business expenses  

If you freelance, have a side hustle or own a business, you can deduct eligible business expenses, which will lower your overall tax bill. But it’s easy to skip over smaller deductions that you think might not qualify.

For example, you can deduct business meals, home office equipment, work supplies, subscriptions to relevant trade journals and continuing education. If these efforts required travel, you may also be able to deduct the cost of your car, gas, mileage, tolls and parking expenses. Just make sure you review the rules to know which expenses qualify, and work with a tax professional if you’re not sure.

Additionally, if your business had a loss in 2021, you might be able to carry forward some of that loss to your 2022 tax return, further reducing your bill.

4. Itemizing your taxes may save you money, even if you’re not self-employed

If your tax return is fairly simple, the standard deduction is usually the best and easiest way to file your taxes. However, you won’t be able to deduct things like medical costs, charitable contributions, property taxes and mortgage interest. 

The IRS has a long list of deductible medical expenses such as ambulance rides, the cost of a breast pump, programs to help quit smoking and mileage to and from doctor appointments. They upped the reimbursement rate for mileage driven in the second half of 2022 to account for higher gas prices. You can also deduct any online financial donations or donations of goods (like clothes). If you have several of these expenses, it might make more financial sense to itemize your deductions instead of taking the standard deduction.

Keep in mind that state returns may have different rules than federal returns. For example, New Jersey lets you deduct out-of-pocket medical expenses once their combined total for the year surpasses 2% of your adjusted gross income, whereas on a federal return, this deduction doesn’t kick in until your expenses have passed 7.5% of your AGI. This means you may be able to take a medical expense deduction on a state return even if you can’t on a federal return.

Itemized deduction example

As an example, if someone with an AGI of $100,000 had $10,000 of medical expenses in 2022, they would be able to deduct expenses beyond the 7.5% salary threshold on their federal tax return. In this case, 7.5% of $100,000 is $7,500, so the remaining cost of $2,500 ($10,000 – $7,500) could be an itemized deduction on their return.

If this person lived in New Jersey as mentioned above, they could also itemize the deduction on their state tax return. New Jersey lets you deduct medical expenses beyond the first 2% of income. In this case, since 2% of $100,000 is $2,000, the deduction would be $8,000. 

State tax deduction amounts will vary from state to state.

5. Brush up on new tax laws 

There were a lot of tax changes in 2022. Several tax breaks that were allowed on your 2021 tax return are no longer available, like the $300 charitable contribution deduction and the increased child tax credit, which is back down to $2,000 per dependent after being $3,600 per dependent in 2021.

There are also some changes and expansions. For example, teachers can now deduct up to $300 for supplies, including COVID-19 cleaning products. The residential clean energy credit also increased, which means more electric cars are eligible for a tax credit this year. 

6. Use technology to help you

If you’re comfortable working without a tax professional, technology can make filing your tax returns even easier. Some tax software options can pull your tax forms directly from your employer or bank, reducing the chance of making a mistake when filling out these fields. Online tax software is convenient, and some options, like Cash App Taxes, even let you file from your phone.

Electronically filing your tax return may also help you get your refund sooner. If you do e-file, hold on to your pin number — which you’ll receive when your return is sent through — with the rest of your files.

7. If you need more time, request an extension now

If you’re worried you won’t have all the information you need to make the filing deadline, request a filing extension now. A tax filing extension will push your due date to Oct. 15, 2023. You can request an extension by filling out and mailing tax form 4868 to the IRS. If you use tax software, you may be able to file an extension online.

Know that if you owe the IRS tax money for 2022, an extension only gives you more time to file, not more time to pay. You’ll want to pay your full estimated tax bill by April 18 to avoid penalties. If you can’t afford the entire bill, pay as much as you can and enroll in an IRS payment plan to break your remaining bill into monthly installments, which will include late payment penalties.

Taxes can feel overwhelming at first, and the rules change slightly each year. Take time now to get organized to ensure a stress-free filing season.

If you found this information useful, please check out our blog for more articles like this.

If you need to run background checks and would like a free quote click here and let us know how we can help you.

The post Tax Preparation Tips appeared first on Precision Background Screening.