Tax season can be a challenging time for both individuals and businesses, but with a little proactive planning, you can avoid the last-minute rush and headaches that often come with filing. Here are ten essential tips to help you get a head start, stay organized, and make your tax filing process as smooth as possible.
1. Start Early and Set a Timeline
Begin your tax prep early to give yourself ample time for gathering documents, consulting professionals, and correcting any issues that may arise. Break the tasks into manageable steps by creating a timeline, with specific goals for each week. Mark key deadlines, especially the tax filing deadline in mid-April (April 15, 2025) for most individuals. (March 15 deadline for S-Corps and Partnerships; and October 15 for returns on Extensions.)
2. Organize Your Documents in Advance
Being organized is one of the most effective ways to reduce tax-time stress. Start by creating a checklist of essential documents you’ll need, such as:
- Income documents (W-2s, 1099s, investment income statements)
- Receipts for deductions (medical, charitable contributions, business expenses)
- Bank statements and credit card records for tracking business-related expenses Consider using a digital tool or app to scan and store your receipts and documents for easy access. Digital storage is not only more convenient but also helps you keep all necessary documents in one place.
3. Review Last Year’s Return
If your finances haven’t changed dramatically, last year’s tax return can serve as a great reference point. Review the forms, deductions, and credits you claimed last year to make sure you’re not missing anything. A quick look back can also remind you of important documents to gather and areas where you might be able to claim similar deductions this year.
4. Stay on Top of Common Deductions and Credits
Knowing which deductions and credits you’re eligible for can make a big difference in your tax liability. Here are a few commonly missed ones:
- Home office deduction for self-employed individuals
- Charitable contributions (cash or items donated to qualifying charities)
- Medical and dental expenses if they exceed a certain threshold of your income
- Educational credits like the American Opportunity Credit or Lifetime Learning Credit Make sure you keep detailed records for these deductions, as the IRS may request proof if you’re audited.
5. Track Business Expenses Carefully
If you’re a business owner or self-employed, accurate records of your business expenses are essential. Some common deductions include:
- Office supplies, equipment, and software
- Advertising and marketing expenses
- Business travel expenses
- Vehicle expenses if used for business purposes Maintain organized records of each transaction and consider using accounting software to track your business expenses throughout the year. This will make filing your taxes easier and more accurate.
6. Check for Any New Tax Law Changes
Tax laws can change frequently, and staying informed is essential to avoid missed deductions or unexpected tax bills. Each year, review the latest IRS guidelines or consult with a tax professional to stay up-to-date on new rules. For instance, recent changes may affect deduction limits, eligibility for credits, or even income tax brackets.
7. Prepare for Estimated Taxes if Self-Employed
If you’re self-employed or a freelancer, you likely need to make quarterly estimated tax payments. These payments help prevent large tax bills (and penalties) at year-end. Set aside a percentage of your income each month to cover these taxes, and make sure to submit payments on time—typically in April, June, September, and January.
8. Double-Check Your Tax Forms for Accuracy
It’s critical to review all of your tax forms, including W-2s, 1099s, and other income statements to ensure accuracy. Even small mistakes can delay the processing of your return or result in additional tax due. If you find any discrepancies be sure to contact the relevant party immediately to get a corrected form.
9. Consider Hiring a Tax Professional
If your tax situation is complex or you’re unfamiliar with recent changes, a tax professional can offer invaluable expertise. They can help you identify deductions you may not be aware of, ensure compliance with tax laws, and even save you time. Additionally, a tax advisor can help you with planning strategies to minimize your tax liability in the future.
10. File Electronically and Use Direct Deposit for Faster Refunds
Filing your return electronically is faster, more accurate, and more secure than filing by paper. Additionally, choosing direct deposit for your refund can shorten the waiting time significantly. E-filing with direct deposit is generally the quickest way to receive any refunds you may be due.
It’s never too early to prepare for Tax Season
By taking a proactive approach, you can make tax season a far less stressful experience. Start early, stay organized, and keep these tips in mind as you prepare. Whether you’re filing for yourself or your business, a little preparation can help you save time, maximize deductions, and reduce the risk of errors. Here’s to a smooth tax season!
With tax season in the rearview mirror, now is the time to take a hard look at your federal and/or state withholdings to ensure next year’s tax bill does not surprise you.
A review is more important than ever.
There are a number of tax code changes that will impact the amount of tax you pay next year. So much so, that if you do not forecast your tax obligation now, you may be in for a very unpleasant surprise. This is true because:
No more advance payments for the Child Tax Credit. The one-year requirement of the IRS to pay out half of the Child Tax Credit in advance is no longer in place. So you will not only need to plan for this change, but it will also impact your tax return.
Child Tax Credits are lower. In addition, the Child Tax Credit amount for each child is rolling back to the 2020 dollar amount of $2,000. This could mean as much as $1,600 in lower credits for each of your children.
Dependent care credits are lower. The dependent care credit is also lower in 2022. So if both you and your spouse work and have daycare expenses, you will need to forecast the impact of this on this year’s tax obligation.
New 1099-K reporting may require estimated tax payments. The IRS will be receiving millions of new informational tax forms reporting activity from those using digital payment platforms. So for those reselling event tickets, using sites like eBay, Esty and Amazon, you will now need to account for all this income. It may now require quarterly estimated tax payments throughout the year.
Be aware of life events. In addition, a change in your situation could create the need to review your withholdings. It could be due to a job change, selling or buying a home, getting married or divorced, or having a birth or death in the family. Whatever the cause, be aware of the potential change and put a sharp pencil to revising your withholdings.
High inflation is impacting everything. Finally, consider the impact of inflation on your situation. This is especially important if you have a small business as higher costs of labor and supplies could dramatically impact your pending tax bill.
Calculating and making adjustments
Using the IRS calculator. The IRS has an online tool to help you calculate how much you will need to withhold. In order to get an accurate reading, you need to have a copy of your latest paycheck or last quarterly estimated tax filing (Form 1040 ES) and a copy of your last tax return.
The IRS tool is here: IRS Withholding Calculator
Simply follow the tool’s instructions and compare the tool’s recommendation to your current withholdings.
Get expert help if necessary. The IRS recently changed the way it calculates recommended withholdings. While the intent is well intended, many are confused by the change. It is always a good idea to call to review your situation if you have any doubts. But do it now, while there is plenty of time in the year to build the proper withholding amount.
File a new withholding form with your employer. Whether you’re paying too much or too little, you can fix it by filling out a new W-4 form and giving it to your employer. If you’re filing quarterly estimated taxes, you can adjust your next quarter’s estimate in a similar way.
In a perfect tax world, you would not owe too much nor get too large of a refund. Think of overpayments as an interest-free loan the government borrowed from you. Conversely, a shortfall means writing a large check when you file your tax return. That’s a surprise few of us want.
Contact Loeffler Financial Group to start planning for your future, 717.393.7366!
Tax credits are one of the most powerful ways to lower your income taxes. A tax credit reduces your tax bill dollar for dollar. A tax deduction, on the other hand, only reduces your taxable income, so your benefit is determined by your tax bracket.
For example, a tax deduction of $1,000 will lower your tax bill by $320 if you are in the 32% tax bracket. A $1,000 tax credit will lower your tax bill by $1,000.
Here are some of the most common tax credits; most are subject to income limits.
- Child credit. Taxpayers who have dependent children under age 17 may be eligible for a child tax credit of $2,000 per child.
- Dependent care credit. Expenses paid for the care of dependent children under 13 and certain other dependents may qualify for a tax credit.
- Education credits. Qualified college and vocational school expenses for eligible students may qualify for a credit. Under the American Opportunity Tax Credit, up to $2,500 per student can be claimed for tuition and fees paid during four years of post-secondary education. Under the Lifetime Learning Credit, up to $2,000 per family is available for post-secondary education expenses and for education expenses to acquire or improve job skills.
- Earned income credit. This credit is intended for low-income taxpayers. The size of the credit depends on the amount of your earned income (wages and self-employment income), investment income, and your filing status. Qualifying children can increase the credit.
- Business credits. There are a number of credits available to businesses. They include the research credit the work opportunity credit, the disabled access credit, and the low-income housing credit.
Don’t overlook valuable credits that could reduce your taxes. For details on the credits for which you might qualify, call Loeffler Financial Group today at 717.393.7366 for a review of your situation.
The adoption process can be expensive. Fortunately, the adoption tax credit can help offset some those expenses Taxpayers who adopted or started the adoption process in 2020 should review the rules for this credit.
Here are some facts to help people understand the credit and if they can claim it when filing their taxes:
- The maximum adoption credit taxpayers can claim on their 2020 tax return is $14,300 per eligible child.
- There are income limits that could affect the amount of the credit
- Taxpayers should complete Form 8839, Qualified Adoption Expenses. They use this form to figure how much credit they can claim on their tax return.
- An eligible child must be younger than 18. If the adopted person is older, they must be physically or mentally unable to take care of themselves.
- This credit is non-refundable. This means the amount of the credit is limited to the taxpayer’s taxes due for 2020. Any credit leftover from their owed 2020 taxes can be carried forward for up to five years.
- Qualified expenses include:
- Reasonable and necessary adoption fees.
- Court costs and legal fees.
- Adoption related travel expenses like meals and lodging.
- Other expenses directly related to the legal adoption of an eligible child.
- If the taxpayer and someone other than a spouse each paid qualified adoption expenses to adopt the same child, the $14,300 credit must be divided between the two of them.
- Expenses may also qualify even if the taxpayer pays them before an eligible child is identified. For example, some future adoptive parents pay for a home study at the beginning of the adoption process. These parents can claim the fees as qualified adoption expenses.
- Qualified adoption expenses don’t include costs paid by a taxpayer to adopt their spouse’s child.
Have additional questions? We’re here to help! Contact Loeffler Financial Group today at 717-393-7366, or email info@loefflerfinancial.com with any questions you may have. Our tax experts and accountants can help break down the steps in order to one, understand the tax credit, and two see if the tax credit will benefit you for your 2020 tax return.