Tax filing season…it comes around the same time every year, so how is it that you always get caught off guard?! College Raya was in the same boat. Never ready to file taxes yet rushing at the last minute to get it done. Don’t be like young me! Be like CGS Raya – I get my taxes filed the day my final form comes in (I would say “the minute” but that’s a bit extreme).
Getting my taxes filed early puts me up first to receive a refund or gives me time to schedule any tax payment due – allowing me to prepare my budget accordingly. Keep reading for 6 tips to tackle tax filing season with ease!
6 Tips to Tackle Tax Filing Season
#1 Start early to avoid delays
As I mentioned earlier, the sooner you get your tax return filed, the sooner you will get your refund. Or, if you owe money, the more time you give yourself to pay. Because any tax payment required isn’t due until April 15th. That extra time can help you stack your chips until you need to pay.
Another reason to start working on your taxes early is because it gives you time to regroup, if needed. For example, if TurboTax is getting too complicated or you want a second opinion, you’ll have more time to reach out to a CPA and not miss the deadline.
#2 Don’t forget your side hustle income
Did you know that third party payment networks (like PayPal, Square, Venmo and CashApp) are required to file Form 1099-K with the IRS and provide a copy to you when the gross payment amount received is more than $600? That means if you have a side hustle and people pay you through those platforms, that income will be reported to the IRS.
I do want to add that Form 1099-K should not report gifts or reimbursement of personal expenses you received from friends and family. So, if that’s the only money you receive on those payment networks, no need to worry.
If you are issued a 1099-K but you failed to report that income when you filed your tax return, it could result in some major penalties and an additional tax payment back to the IRS. To tackle tax filing season seamlessly, make it a point to always include your side hustle income. You may want to consider forming an LLC if you plan on continuing to receive the income. Check out What You Need to Know About Side Hustles and Taxes for more information.
Note: The IRS released a statement saying they will pause 1099-K requirements for 2023 and phase in the requirements for 2024, starting with a $5,000 income threshold.
#3 Understand Standard Deduction versus Itemized Deductions
Every year when I help my clients run through TurboTax, the question of standard deduction versus itemized deduction always comes up. Mostly because people think that just because they donated means they will see tax savings.
If the donation amount is less than the standard deduction ($13,850 in 2023), then the standard deduction will be a better fit and your donation amounts won’t matter. The same applies for other deduction categories (education, medical expenses, property taxes, etc.).
Make sure you read up on the differences between the two, especially if you plan to file on your own. If you use a CPA, pick their brain so you’re knowledgeable for the future.
#4 Evaluate your retirement contribution
The more money you make, the higher your tax bracket. The higher your tax bracket, the more you pay in taxes. One way to lower the amount of taxes you pay (by downgrading your tax bracket), is to contribute more to a retirement plan. Now, this only works with pre-tax contributions. Pre-tax retirement plan contributions lower your taxable income.
If you’re making more than six figures, you can definitely see a difference when you increase your pre-tax retirement contributions. While the tax savings won’t necessarily come back in your paycheck, it will go to you via your retirement plan. That’s better than the IRS getting it!
#5 Going to school? Look into tuition reimbursement and the Lifetime Learning Credit
Did you know that most employers offer some form of tuition reimbursement if you’re going to school for something related to your job? That alone can save you money, but what can also save you money is the Lifetime Learning Credit.
The Lifetime Learning Credit is for qualified tuition and related expenses paid for eligible students enrolled in an eligible educational institution. This credit can help pay for undergraduate, graduate, and professional degree courses — including courses to acquire or improve job skills. There is no limit on the number of years you can claim the credit. It is worth up to $2,000 per tax return.
If you’re paying any sort of out-of-pocket expense for school or learning, you can get a credit on your tax return!
#6 It’s better to file and get on a payment plan than not file at all
My final tip to tackle tax filing season is this: it’s better to file and get on a payment plan than to not file at all. Don’t be one of those people who avoid filing their taxes, so they don’t have to make the payment. That will cause a lot more harm than good, and it will result in more fees.
If you can’t pay your tax bill in full, you can always get on a payment plan – and usually you get to set your own terms! If you do need to push out filing, make sure you file an extension form. This will give you until October 15th to get your return filed. Do not miss this deadline!
Related: 5 Ways to Prepare for Tax Time
Want more tax insight? I spoke with Duke Moore, CPA and founder of Duke Loves Taxes about how people can tackle their taxes with confidence on the City Girl Savings Podcast. Check out the episode, or listen on Apple Podcasts or Spotify.
The tips above can help set you up for success this tax season and for future tax seasons! The earlier you start, the better off you’ll be! What’s your process for filing taxes? Do you do it yourself or work with someone? Drop a comment to share your tax filing experiences!