Navigating the complexities of tax filings can be daunting. With careful planning and organization, however, you can make the process more manageable.
Whether you are an employee, self-employed individual or business owner, taking proactive steps before the year-end can ensure a less stressful tax season.
Review income and deductions
Start by reviewing your income and deductions for the year. Ensure that you have documentation for all sources of income, including employment, freelance work, investments and any other financial activities. Compile receipts and records for deductions such as business expenses, charitable contributions and medical costs.
Organize financial documents
Systematically gather your tax-related paperwork. Create folders for income statements, expense receipts and relevant tax forms. Having a well-organized process will save time when you prepare your tax return.
Evaluate retirement contributions
Consider maximizing contributions to retirement accounts before the year-end. Contributing to these funds can secure your financial future while offering potential tax benefits. Review the contribution limits for your specific retirement accounts and adjust as needed.
Explore tax credits
Be aware of available tax credits for which you may qualify. Tax credits can directly reduce your tax liability, providing valuable savings. You may be eligible for credits for education expenses, childcare costs or energy-efficient home improvements.
Plan for estimated taxes
If you are self-employed or have other income sources not subject to withholding, plan for estimated tax payments. Paying throughout the year can prevent a large tax bill and potential underpayment penalties.
Stay informed on tax law changes
Be aware of changes in tax laws that may impact your filing. Doing so can help you make informed decisions and take advantage of any new opportunities and changes in deductions.
Consider charitable contributions and gifts
If you plan to make charitable contributions, do so before December 31 to include them in your current tax year. Keep detailed records of your donations, including receipts from charitable organizations. You can exclude up to $18,000 in gifts from your income tax return for 2023, an increase from $17,000 in 2022.
Check health insurance coverage
Ensure you have maintained the required health insurance coverage throughout the year. Become familiar with penalties or exemptions to avoid surprises during tax season.
Start preparing for tax season early if you have a complicated financial situation. Filing your returns late can result in interest and fees.