Income tax returns are not due for three months, but your preparation should start now. Here are my tips to make tax time easier for you.
- Get a large envelope (11″ x 14″) to put your tax documents in.
- Watch the mail for envelopes marked “Important tax information enclosed. For now, put these documents into your envelope.
- Gather tax information that was provided during the year and put into the envelope.
- Make a quick estimate of your deductions. For most taxpayers, the largest deductible expenses will be home mortgage interest and charitable donations. Add those values. If the sum is much lower than your standard deductions, then don’t bother with adding up your other deductible expenses, unless you had extraordinary health care costs for the year.
- Be prepared to get a smaller refund, or to owe more, this year. Tax law changes may result in you having a larger tax liability.
Tax information being sent out in January includes:
- W-2’s and 1099’s for earned income
- Social security payments
- Mortgage interest statements
- 1099’s for dividends, interest, retirement income, and IRA withdrawals
- Statements on rental income and expenses from property managers
- 2021 state income tax refund statements
- Receipts for charitable donations larger than $75
Other tax information was provided to you during the year. This includes property taxes you paid on homes, vehicles, motorcycles, and boats. You likely received receipts throughout the year for donations that you made to charities that were less than $75 each and donations of non-monetary goods and services made to charitable organizations.
The 2022 standard deduction levels were increased, making it less likely that you will benefit from itemizing. The 2022 standard deductions are:
- Married couples filing jointly = $25,900
- Heads of households = $19,400
- Single individuals and married couples filing separately = $12,950
Major Tax Changes for 2022:
- Smaller child tax credits and credits for child and dependent care. These credits were temporarily increased by the American Rescue Plan of 2021. They have now reverted back to 2020 levels.
- Charitable donations are no longer deductible without itemizing. The American Rescue Plan allowed up to $300 for a single taxpayer and $600 for a married couple filing jointly to be deducted without itemizing.
- Income from side hustles will be reported to the IRS. To be fair, we were always supposed to report ALL income earned from side jobs and hobbies. New regulations will require all third-party payment processors, such as Etsy and PayPal, to send 1099’s to all vendors who have generated more than $600 in revenue in a calendar year. Recently, the IRS announced that it will postpone enforcement of this regulations for one more year. This year, 1099’s will only be sent to vendors who earned more than $20,000 or had 200 or more transactions.
So, watch the mail for tax documents and start reviewing your paperwork for information that will be needed to complete your tax return.
Oh, and while you’re thinking about taxes, get an 11″ x 14″ envelope and write on it “2023 Tax Info.” Use it to collect receipts for donations, property tax bills, and other documents received during the year. This will give you a head start for next year.
Watch for blog in early February on preparing your information for your accountant.