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tax tips to save money

Tax Tips to Save Money

This originally aired on the Catholic Faith Network’s show CFN Live:

It is not too late to save money on your 2022 taxes! There are steps that can be taken to help you lower your taxes, save money when preparing your tax return, and avoid tax penalties.

Start Early to Avoid Delays

Even with additional IRS employees working to help taxpayers deal with changing and potentially confusing filing requirements, this year’s filing season could still be a tough one. If your return is flagged for review, your refund will almost certainly be delayed.

What can you do to speed things along?

  • If your tax return is simple (filed with a single W-2 and the standard deductions), get it done early and e-file. Avoid potential mail delays by setting up direct deposit with the IRS.
  • If your tax return is more complex, start gathering your information and engage help ASAP. The sooner you start the process, the more time you’ll have to track down missing information, smooth out discrepancies, or find a qualified tax professional.

Organize Your Records for Tax Time

Good organization may not cut your taxes. But there are other rewards, and some of them are financial. For many, the biggest hassle at tax time is getting all the documentation together. This includes last year’s tax return, this year’s W-2s and 1099s, receipts and so on.

How do you get started?

  • Print out a tax checklist to help you gather all the tax documents you will need to complete your tax return.
  • Keep all the information that comes in the mail in January, such as W-2s, 1099s and mortgage interest statements. Be careful not to throw out any tax-related documents, even if they don’t look very important.
  • Collect receipts and information that you have piled up during the year.
  • Group similar documents together, putting them in different file folders if there are enough papers.
  • Make sure you know the price you paid for any stocks or funds you have sold. If you don’t, call your broker before you start to prepare your tax return.
  • Know the details on income from rental properties. Don’t assume that your tax-free municipal bonds are completely free of taxes. Having this type of information at your fingertips will save you another trip through your files.

Contribute to Retirement Accounts

If you haven’t already funded your retirement account for 2022, you have until the tax return filing due date to do so. That’s the deadline for contributions to a traditional IRA, deductible or not, and to a Roth IRA.

  • If you have a Keogh or SEP and you get a filing extension to October 16, 2023, you can wait until then to put 2022 contributions into those accounts.
  • To start tax-free compounding as quickly as possible, however, don’t waste time in making contributions.

For 2022, the maximum IRA contribution you can make is $6,000 ($7,000 if you are age 50 or older by the end of the year). For self-employed persons, the maximum annual addition to SEPs and Keoghs for 2022 is $61,000.

Note: Although choosing to contribute to a Roth IRA instead of a traditional IRA will not cut your 2022 tax bill (Roth contributions are not deductible), it could be the better choice because all withdrawals from a Roth can be tax-free in retirement.

Itemize Your Tax Deductions

It’s easier to take the standard deduction, but you may save taxes if you itemize your deductions.

  • Itemizing is worth it when your qualified expenses add up to more than the 2022 standard deduction of $12,950 for most singles and $25,900 for most married couples filing jointly.
  • Many deductions are well known, such as those for mortgage interest and charitable donations.
  • You can also deduct the portion of medical expenses that exceed 7.5% of your adjusted gross income for 2022.

Take the Home Office Tax Deduction

The eligibility rules for claiming a home office deduction have been loosened to allow more self-employed filers to claim this break. People who have no fixed location for their businesses can claim a home office deduction if they use the space for administrative or management activities, even if they don’t meet clients there.

  • You must use the space exclusively for business.
  • Many taxpayers have avoided the home office tax deduction  because it has been regarded as a red flag for an audit. If you legitimately qualify for the deduction, however, if you are entitled to the deduction, you should take it.
  • Expenses associated with the portion of your home where you exclusively conduct business (such as rent, utilities, insurance, and housekeeping) are deductible. The percentage of these costs that is deductible is based on the square footage of the office to the total area of the house.

Provide Dependent Taxpayer IDs on Your Tax Return

Be sure to plug in Taxpayer Identification Numbers (usually Social Security Numbers) for your children and other dependents on your return. Otherwise, the IRS will deny any dependent credits that you might be due, such as the Child Tax Credit.

  • Be especially careful if you are divorced. Only one of you can claim your children as dependents, and the IRS has been checking closely lately to make sure spouses aren’t both using their children as a deduction.
  • After you have a baby, be sure to file for your child’s Social Security card right away so you have the number ready at tax time. Many hospitals will do this automatically for you.
  • If you don’t have the number you need by the tax filing deadline, the IRS says you should file for an extension rather than sending in a return without a required Social Security number.

Check New Rules on Credits and Deductions

Tax credits and deductions can reduce your tax bill significantly or increase your refund if you have one coming. The American Rescue Plan Act temporarily increased certain tax credits and added a special rule for charity deductions. Now that these programs are ending, check the eligibility rules and deduction amounts to see what’s currently available.

Here are a few credits and a deduction to consider:

  • Child tax credit:  In 2022, the Child Tax Credit returns to its 2019 amount: up to $2,000 per eligible child.
  • Child and dependent care credit: The child and dependent care credit is up to $2,100 in 2022.
  • Earned income tax credit: The earned income tax credits are lower this year than last. The rules are complex so check to see if you are eligible and for how much for 2022.
  • Premium tax credit: If you purchased health insurance through the health insurance marketplace in 2022, the American Rescue Plan Act temporarily expanded eligibility for this credit by including taxpayers with household incomes above 400% of the federal poverty line.
  • Clean energy vehicle credit: Tax credits of up to $7,500 are still available for qualifying electric and plug-in hybrid vehicles but check the eligibility rules to make you’re your vehicle qualifies.
  • Donations to charity: In 2022, you will have to itemize your deductions if you want to claim a deduction for charitable giving (unlike 2021).

Count Your Gig Work as Income

If you earned money in the gig economy—driving for a delivery app, for example—you must report your income and pay taxes on it. Depending on whether you’ve worked as an employee or a contractor, you may need to file Schedule C: Profit or Loss from Business.

Report Profits, Deduct Losses on Investments

Remember that capital gains are not based on the value of your investments: They’re based on the profits you realize when you sell an investment for more than you paid. If you didn’t sell any investment assets in 2022, you don’t owe anything, at least for capital gains (dividends or interest payments count as income). However, if you sold stocks, mutual funds, real estate, cryptocurrency or another investment for a profit, you must report the gain (or loss) on your tax return and pay applicable capital gains taxes.

If you sold investments for a capital loss, you could use your loss to offset your capital gains for the year. You may also deduct up to $3,000 in capital loss against your ordinary income and do the same as a carryover loss of up to $3,000 a year until the loss is used up. You may also use a carryover loss to offset capital gains in future years.

Make a Last Minute Estimated Tax Payment

If you didn’t pay enough to the IRS during the year, you may have a big tax bill staring you in the face. Plus, you might owe significant interest and penalties, too.

  • According to IRS rules, you must pay 100% of last year’s tax liability or 90% of this year’s tax or you will owe an underpayment penalty.
  • If your adjusted gross income for 2021 was more than $150,000, you have to pay more than 110% of your 2021 tax liability to be protected from a tax year 2022 underpayment penalty.

If you make an estimated payment, you can minimize the penalty.

File and Pay on Time

File and pay your tax on time to avoid late filing penalty and late payment penalty. If you can’t finish your return on time, make sure you file for an extension (Form 4868) by April 18, 2023.

File Electronically

Electronic filing works best if you expect a tax refund. Because the IRS processes electronic returns faster than paper ones, you can expect to get your refund three to six weeks earlier.  If you have your refund deposited directly into your bank account or IRA, the waiting time is even less.

Find the Right Tax Forms

There are now four variations of the 1040 form for 2022 (1040A and 1040EZ no longer exist):

  • Form 1040: This is the one the majority of taxpayers will use to report income and determine their tax for the year and any refund or additional tax owed.
  • Form 1040-SR: This version is for senior taxpayers (age 65 and older). Form 1040-SR is nearly identical to Form 1040 but is printed using a larger font and includes a chart for determining the taxpayer’s standard deduction.
  • Form 1040-NR: This form is for non-resident aliens, and it’s several pages longer than the other 1040 form versions.
  • Form 1040-X: This form is for taxpayers who need to make amendments to their tax return after previously filing a Form 1040.

Plan for an Extension Now if You Need One

  • If you can’t get your tax information together by the April 18 deadline, you can file an extension to automatically move your deadline to October 16. But don’t wait to pay the taxes you owe: The IRS expects you to make a good faith estimate if you want to avoid penalties and interest. Also be mindful of all IRS deadlines this year, including estimated tax payments for 2023.

Decide If You Need Help

If you have a return that you are comfortable completing, then go for it. You should be aware that you can prepare your federal tax return using IRS Free File”.  There is no cost to the taxpayer.  Seventy percent of the nation’s taxpayers are eligible for IRS Free File.

The IRS’s commercial partners also offer free brand-name software at no cost to the taxpayer if your adjusted gross income (AGI) is $73,000 or less.  If you meet the AGI requirement, you can select one of eight commercial software programs to guide you through filing a federal tax return.

If you have a more complex situation or are uncomfortable filing your return, you should seek professional assistance.  Missing a deduction can cost you.  Also, making mistakes could lead to additional taxes, interest, and penalties.

We hope you found this article helpful. Contact our office today at 1 (800) 680-1717 and schedule an appointment to discuss what makes sense for you and your loved ones.

Russo Law Group, P.C.
100 Quentin Roosevelt Blvd., Suite 102
Garden City, NY 11530

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