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Tips to Prepare for Next Year’s Taxes Now

May 16, 2023

Though April 18th has come and gone, and taxes are likely the last thing on your mind right now, it is wise to start preparing for next year’s taxes now, especially if you had a surprise tax bill. Read on.

Did you receive an unexpected tax bill this year? Was your refund smaller than expected? Now might be a good time to review your withholdings and portfolio. Here are some considerations.

Review your withholdings

It is wise to review your withholdings post filing season. You could owe a large tax bill if too little is withheld, and potentially incur penalties for underpayment. If too much is withheld, you could be receiving a smaller paycheck.

If you're unsure whether your withholding is correct, you can use the IRS withholding calculator to estimate your tax liability and adjust your withholding accordingly. Consulting your tax professional is always a good idea, too! You can adjust your tax withholding by filling out a new W-4 form with your employer. The W-4 form will allow you to adjust the amount of taxes withheld from your paycheck.

Reasons you might change withholdings

  1. Employment changes- If you experience a significant change in your income, such as getting a raise, starting a new job, or receiving additional income from a side business, you may want to adjust your tax withholding to ensure you're paying the appropriate amount of taxes.
  2. Family changes- Family changes including marriage, divorce or children will impact your taxes.
  3. Lifestyle changes- Did you recently buy a home? Certain tax deductions available to homeowners (mortgage interest deduction, property tax deduction, etc) will reduce your overall tax liability, hence changing your withholding.
  4. Tax planning purposes- Some individuals choose to adjust their withholding to align their tax payments with their overall tax strategy. For example, if you're aiming for a specific tax refund amount or trying to minimize your tax liability throughout the year, you may want to modify your withholding accordingly.
  5. Tax law changes- Of course, tax laws and regulations can also change over time, potentially impacting your tax liability.

Maximize tax credits and deductions

Make sure you claim all eligible tax deductions. Credits reduce the amount of tax you owe, while deductions reduce the amount of your income before you calculate the tax you owe.

What is the standard deduction?

The standard deduction is a dollar amount that reduces the amount of income on which you are taxed and varies according to your tax filing status. For 2023, the standard deduction is $27,700 for married taxpayers filing jointly, and $13,850 for single taxpayers and married taxpayers filing separately. For many taxpayers that we work with, the standard deduction yields a better result than itemizing.

What does it mean to itemize?

Itemizing means listing out each deduction you qualify for, the sum of which is used to lower your adjusted gross income.

What credits and deductions are available to individuals?

This is not an exhaustive list, but here are some common credits and deductions available to individuals:

  • Advance Child Tax Credit
  • Earned Income Tax Credit
  • Child and Dependent Care Credit
  • Foreign Tax Credit
  • Meals and Entertainment Deduction
  • Charitable Donation Deduction
  • Home Mortgage Interest Deduction
  • Investment Expense Deduction
  • Medical Expense Deduction
  • Plug in electric vehicle credit

Need help assessing your individual situation? Contact us.

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