How to Prepare for Tax Season with Tax-Savvy Financial Moves
It’s the beginning of the year, which means (among other things) that tax season is approaching. This year especially brings a lot of uncertainty with new tax regulations.
Here are a few things you can do now to make tax season a breeze.
Check how changes in tax laws will affect you
Tax law changes frequently, and this past year brought a lot of big changes. Before you panic, know the facts and how they affect you. This article is a good place to start. There’s a lot of detail, so focus your attention on these issues that I pulled from the article and the IRS website because I want your life to be easier (you’re welcome):
- Reduced tax rates – The 2018 Tax Cuts and Jobs Act lowered U.S. tax rates. While the number of tax brackets remained at seven, the rates were lowered and the income thresholds were increased (mostly for high income earners).
- Taxpayers can choose between using the standard deduction or itemized deductions. Itemizing deductions means adding up all of the individual tax deductions to which you’re entitled and then subtracting them from your adjusted gross income (AGI). (Note: Adjusted gross income is your total income minus a few adjustments. Common adjustments to income include traditional IRA contributions and student loan interest, just to name a few.)
- Elimination of personal exemptions – this makes me sad, but we will see what happens with these changes:
- Increased standard deductions: $12,000 for singles, $18,000 for heads of households and $24,000 for married couples filing jointly
- Increased child tax credit: $2,000 per qualifying child and a new $500 credit for other qualifying dependents
- Changes to itemized deductions
The IRS website has a calculator so you can do a “paycheck check up” to see if you are withholding the right amount for your situation. That won’t help much for this year but you can get a jump on next year planning by checking out your withholding on your W-4 (yes, you can change it).
Reach out for reliable help
Each person and situation is different, so if you have questions, you may need to consult a professional to find the answer. Just make sure you’re getting help from a reliable source, such as the IRS website or a VITA site.
Get help with your small business taxes
If you’re self-employed, you probably already know that you have different tax obligations. To get started, check out Small Business Taxes: The Virtual Workshop, a helpful video series from the IRS. It covers everything from setting up a retirement plan to withholding taxes from your payroll, and lots more.
Be on the lookout for tax scams
Got a call from the IRS? It might not have actually been the IRS. Watch this video to hear directly from the IRS about the increase in tax scams and how to protect yourself. I’ve also documented several other tax scams that you should be aware of.
Tax time can be stressful, so be gentle with yourself. Take advantage of all the deductions that apply to your situation and learn from this year’s filing to prepare for the next filing season(especially withholding and pre-tax deductions).