7 Steps to Take Before You File Your Taxes This Year

Rushing to file your tax return before the deadline may mean making mistakes that could have been avoided. Even now, there is still plenty you can do to plan ahead and prepare before filing your taxes. Here are eight steps designed to help tax filers save money and avoid surprises when filing this year. 

Step #1: Figure Out Your Filing Status

Will you be filing single or jointly this tax year? That’s an easy question for many. But if things have changed due to marriage, divorce, separation, or a passing, your status will change for the filing period. Identify what status you will be listing for this filing period early because it will greatly impact the rest of your tax return.

Step #2: Organize Your Information 

Even if you’re going to ultimately work with a tax professional, using tax software can help you get all of your paperwork together and answer some basic questions. Your preparer may appreciate the organization, and you may be able to save time when meeting with them in person or virtually.

Step #3: Go Digital

You may find it easier to work through tax documents when they are scanned and organized by topic or deduction type. This is something most people can do on their own. Create a digital folder on a flash drive and have everything ready to file your taxes. Most financial documents provided by a bank, credit card company, or even stores can be downloaded, giving you easy access to these documents.

Step #4: Hunt Down All Your Charitable Donations

If you opt to take an itemized deduction, your qualifying charitable donations can count toward your deduction. You can only claim this deduction if you have proof, typically in the form of a donation receipt. Many people have them, but like other receipts, aren’t sure where they placed them, often having stuffed them in drawers or file piles. Take some time now and do a thorough sweep for any relevant receipts or documents. 

Step #5: Decide Between Standard and Itemized

Standard deductions for the 2023 tax year are:

• $12,950 for individuals ($13,850 for 2023)
• $25,900 for joint filers ($27,700 for 2023)
• $19,400 for heads of household ($20,800 for 2023)¹

When itemizing your deductions, it’s unwise to take a deduction on a tax return simply because you believe you’re eligible. There should be a supporting document that objectively validates the deduction. Whether that document is a receipt, proof of address, membership, or any other category, you want your paperwork to be able to back up your claims. In an audit, there won’t be time for guessing; you either have the proof, or you don’t.

Step #6: Catch Up on Retirement Savings

If you have an IRA, you can still make adjustments for the prior year up until you file your tax return. If you have not maxed out your contribution limits for 2023, you and your financial advisor may find it advantageous to post your retirement contributions to the 2023 tax year, even if it is the beginning of 2024. You may contribute up to $6,500 for those under 50 and $7,500 for those 50 and older to your IRA. This can help maximize your deposit ability for the next year, and may reduce your taxable income for 2024.² 

Step #7: Avoid the Estimated Tax Penalty

If you are a business owner or otherwise earn income that does not have taxes automatically withheld by an employer, estimated tax payments may be required or recommended. While it’s too late to make estimated tax payments for the 2023 tax year, now is a good time to determine if you should be making them for 2024.

Estimated taxes may be required or recommended for those who earn income through:

• Interest
• Dividends
• Alimony
• Self-employment income
• Capital gains
• Prizes
• Awards³

Make sure to take your time when filing your 2023 taxes. Double-check this list, and more importantly, contact a tax professional who can help maximize your return and stay on top of recent tax changes for yourself and your business. At Generous Wealth Management we include tax advice and preparation for select clients and business as our team includes qualified tax professionals.