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I know you just filed your tax return and the last thing you want to think about is next year’s taxes but making a few changes now can make filing next year’s tax return much easier, more organized, and less time consuming. I am going to share with you a few tips and resources below, but each person’s tax situation is unique, and a tax professional should be consulted on any major change you are considering.
Be Knowledgeable on Upcoming Tax Changes
This past November The Internal Revenue Service (IRS) announced the tax year 2022 annual inflation adjustments for more than 60 tax provisions, including the tax rate schedules and other tax changes. Revenue Procedure 2021-45 provides details about these annual adjustments. Visit the IRS website for highlights on these change IRS provides tax inflation adjustments for tax year 2022 | Internal Revenue Service.
Consider Adjusting Your Withholdings
When you filed your tax return, you either got a refund or you owed money. Most people are just relieved to be finished and plan for the same refund or amount owed next year. But, consider adjusting your withholdings if you owed taxes or received a large refund last year. Changing your withholding can help you avoid a tax bill or let you keep more money each payday. Life changes – getting married or divorced, welcoming a child, or taking on a second job – may also mean changing withholding.
The IRS website has a Tax Withholding Estimator to help you determine the right amount of tax to have withheld from your paycheck. This tool can help you determine if you need to adjust your withholding and submit a new Form W-4 to your employer’s payroll or human resources department.
Also look at your current return to determine if you receive a substantial amount of non-wage income like self-employment income, investment income, taxable Social Security benefits and in some instances, pension and annuity income. This may mean you should make quarterly estimated tax payments. For more information on estimated tax payments see Publication 505 (2022), Tax Withholding and Estimated Tax | Internal Revenue Service (irs.gov)
Review Your Current Return for Possible Tax Savings
While last year’s tax return won’t predict next year’s tax return perfectly it can give you a general idea of where you’ll fall income, credit, and deduction wise next year.
- Figure out what tax items from last year you’ll have again next year.
- Look at Standard vs Itemized deductions.
- Look for other deductions or credits you think you’ll qualify for based on your projected tax situation. There may be certain deductions or tax credits you can take, such as those for traditional IRA contributions, that you weren’t able to take last year.
- Consider the benefits of tax-deferred investing. This option allows you to defer paying taxes on investment returns until retirement when your income tax rate may be lower. This flyer from Franklin Templeton, Being Tax Wise, offers a vivid illustration of the impact it can have on investment results over time.
Organize Your Records
First store a copy of your current return in a safe place. Then decide how you are going to store and organize the documents and papers you receive throughout the year for your next return. Your system doesn’t need to be fancy, but it should be organized and help you avoid having to scramble for misplaced tax documents necessary to complete your return come tax time. Some options to consider:
- Basic labeled file folders kept in a safe place
- Setting up labeled tax folders in your email to save emails that contain documents or receipts you need for your return
- Setting up tax folders on your computer where you can save electronic document copies or scanned paper documents
No one likes to think about taxes but, a little planning now will hopefully make preparing your return next year a little easier and maybe a little less painful financially. I must note that the information provided here is not intended as tax or legal advice, and may not be used for the purpose of avoiding any federal tax penalties. So, please consult legal or tax professionals for specific information regarding your individual situation and before making any major change that may impact taxes
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.