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Tax Tips for January
January is the busiest month of the year for tax professionals and taxpayers alike. With the new year comes the need to start preparing for the upcoming tax season. Whether you are a first-time taxpayer or an experienced one, understanding the basics of tax preparation can help you save money, time, and stress. From filing deadlines to deductions and credits, here are some essential tax tips to help you get started in January.
Understanding the basics of tax preparation
Accounting and tax preparation are like the chicken and the egg. Which came first? The truth is that accounting and taxation are interrelated. Tax preparation begins with accounting because the numbers you record in your accounting software will be transferred to your tax return. Taxes are due every year on April 15th, unless you file for an extension. Taxpayers are responsible for calculating and reporting their annual income and capital gains, which are then taxed according to their income bracket.
Key filing deadlines
Tax filing deadlines are on a calendar year. However, the dates below are based on the fiscal year, which begins on October 1st. This means if you file in January, your return will cover the previous tax season. If you are a new taxpayer, consider filing for an extension to give yourself more time to gather your financial records and make sure that your taxes are as accurate as possible. If you are a first-time homebuyer, you can claim a tax credit of up to $750 for the purchase of your primary residence.
Important deductions and credits
Deductions are amounts subtracted from your taxable income. Credits are an amount that is subtracted directly from your tax bill. There are many deductions and credits that might be applicable to your tax situation. Some of the most common deductions are listed below.
- Self-employed – This refers to anyone who works as an independent contractor and has a side hustle that generates income. Expenses such as travel, office space, supplies, and health insurance are deductible.
- Charitable donations – Make sure to keep track of the donation amount, date, and recipient organization.
- Student loan interest – If you are repaying a student loan, all interest that you have paid is tax deductible.
- Medical expenses – Medical expenses that exceed 10% of your adjusted gross income (AGI) are deductible.
How to save money on taxes
The first step to saving money on taxes is to make sure that you have all of your paperwork in order. Keeping good records throughout the year is crucial for tax preparation, especially if you are self-employed or have student loan interest. Make sure to keep track of your receipts and write down any expenses you plan to include in your taxes. Some deductions, such as charitable donations and student loan interest, must be entered on the IRS form.
If you have a mortgage or student loans, you might be eligible for the mortgage interest deduction or student loan interest deduction. If you itemize, these deductions may help you lower your taxable income, resulting in a smaller tax bill. If you have a large amount of medical expenses, you may be able to reduce your taxable income by claiming a deduction. Keep in mind that the 10% AGI threshold applies if you want to claim these expenses as a deduction.
Tips for filing taxes online
If you are a first-time taxpayer or do not have a lot of extra time, filing your taxes online is a great option. Many online tax services offer free filing if your income is less than a certain amount each year. Many online tax services offer a free service for simple filers who are not claiming any dependents, have only a W-2 form of income, and have no itemized deductions other than a mortgage interest or charitable donations. If you are filing your taxes online, double-check your information for accuracy. Double-check for math errors, and make sure that you have entered your information correctly.
Benefits of hiring a tax professional
Tax preparation is a complicated process that requires the use of a variety of sources, including W-2 forms, 1099s, and 1095-A’s. If you have experienced a significant life change, such as a new marriage or the birth of a child, you should consider hiring a tax professional to ensure that you are claiming every allowable deduction. Tax professionals have access to software programs that are updated with current tax laws.
Hiring a tax professional can also offer the following benefits:
- You can use a tax professional’s experience to your advantage.
- They can help you plan for the future and maximize your tax savings.
- A tax professional can help you avoid costly mistakes that can delay your tax return.
Strategies for organizing your tax documents
Keep track of all your documents by creating a folder or spreadsheet where you can store all of your receipts, W-2 forms, and 1099s. Depending on your tax situation, you may need to keep records for up to 7 years. When you are ready to file, make sure to include your important documents in your tax return. If you are filing jointly with your significant other, you can combine your W-2 forms into a single document. If you are self-employed and have a 1099-Misc, you will need to keep your original copy and attach it to your tax return. Organizing your tax documents will make the preparation process much easier, allowing you to complete your taxes in a timely manner.
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