Before Completing Your 2022 Tax Return, Keep These 5 Filing Tips in Mind
About the author: Lamar Watson, CFP®, is a Fee-Only Financial Advisor in the Washington, D.C. area that works with clients virtually across the country. Lamar's work with his clients starts with a focus on budgeting, insurance, optimizing employee benefits, investing, and retirement planning. Dream Financial Planning is a Fiduciary Financial Planning firm specifically designed to help individuals in their 30s and 40s take control of their finances and fulfill their dreams. Feel free to schedule a complimentary consultation to learn how we use the DREAM Financial Planning Process ™ to help our clients achieve their goals.
While doing your taxes always feels a bit tedious, these five tips can help you stay the course for filing your 2022 tax return.
Tip #1: Leverage Technology
If you are filing without the help of an accountant or advisor, you may find it beneficial to use tax preparation software. You can input the information, and the software can populate the numbers for you. Utilizing software can help you meet compliance requirements and help streamline the process, which in turn can potentially speed up the time it takes to receive your tax returns.
Tip #2: Accuracy Over Speed
Getting an early start on the filing process can allow you the time needed to go through your returns several times before mailing or e-filing. When you are claiming deductions, make sure you’re eligible under the current IRS rules, as some rules change year to year.
Have a paper trail ready and simply read from what you have in front of you. Take advantage of automated systems that can funnel reported income, interest or dividends directly into your tax preparation software. Guessing is fine if you want to estimate your refund amount, but not when you report to the IRS.
Tip #3: Report Everything
You may have made several charitable contributions last year or had several income streams. Perhaps you had a few investments that didn’t yield much. Whatever it may be, you should report all of this on your return.
When using tax software, it will recognize when you’ve given enough or earned enough to affect the amount of taxes you owe. Remember, it’s better to overreport than to leave things off your returns. The IRS is likely to discover how much you’ve earned or received via reporting requirements and will know if you haven’t reported income. If this is the case, then you may have to pay a little more next year.
Tip #4: Choose Between Standard Deduction & Itemizing
The IRS allows a standard deduction amount for those who wish to simplify filing. For the 2022 tax year, the standard deduction amount is $12,950 for single filers, $25,900 for married couples, and $19,400 for head of household.1 You can reduce the taxable amount on your return using the standard deduction. However, itemizing them may enable you to reduce your taxable amount even more. Some commonly used deductions include:
- State and local taxes
- Charitable contributions
- Casualty loss
- Business expenses for which you weren’t reimbursed
- Medical expenses
- Mortgage interest
If you’re already an itemizer, you should be sure to note how the most recent changes in the tax code may have (or may not have) affected certain deductions.
Tip #5: Understand Tax Credits
Tax credits act as reductions on the amount of tax owed. It’s important to note that they do not reduce your taxable income or change your tax bracket as a deduction might.
An example is the Earned Income Tax Credit, which helps low- to moderate-income workers and their families receive tax relief. If you qualify, you can use the credit to reduce the taxes you owe, which can potentially increase your return.2
According to a report by the Treasury Inspector General for Tax Administration, approximately 5 million potentially eligible taxpayers do not claim the credit each year, which results in about $7 billion in unclaimed benefits annually.3 To ensure you are not missing out on this opportunity, you should check for this and other tax credits for which you may be eligible.
If you have any questions this year, be sure to speak with a CPA or other trusted tax professional regarding your situation. An experienced professional can answer your questions and empower you to start the tax season off with confidence.
With uncertainty surrounding the economic stability of our country, it's okay to have fears and anxieties surrounding your savings and investments. The most productive course of action from here is to reach out to Dream Financial Planning (or whoever your trusted advisor might be) and discuss your options. It's easy to have knee-jerk reactions when it feels like the bottom is falling out, but it is imperative to make decisions using research-backed data and a level head. If you'd like a Complimentary Review and risk assessment of your investment portfolio, feel free to send me an e-mail.
In the June Newsletter, I provide a market update and a PDF guide with tips to help you handle inflation. I also shared a CNN article where I shared my thoughts on Crypto and NFTs, 5 savings mistakes people make when building their financial life. If you find any of this information helpful, feel free to sign up to receive future e-mail updates. If you find any of this information helpful, feel free to sign up to receive future newsletters via e-mail.
SIGN UP TO RECEIVE OUR MONTHLY NEWSLETTER BY E-MAIL
Important Numbers For 2023
Your company offers a 401k. Now what?
"You're a CFP® professional, Great what's a CFP®?"
6 Common Financial Stress Triggers and How to Overcome Them
Disclaimer: Dream Financial Planning, LLC does not warrant that this information will be free from error. None of the information provided on this website is intended as investment, tax, accounting, or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering. The information should not be relied upon for purposes of transacting securities or other investments. Your use of the information is at your sole risk. Under no circumstances shall Dream Financial Planning, LLC be liable for any direct, indirect, special, or consequential damages that result from the use of, or the inability to use, the materials in this site, even if Dream Financial Planning, LLC or a Dream Financial Planning, LLC authorized representative has been advised of the possibility of such damages. Please consult with your own advisor before making any changes to your Financial Plan, Investments, or Insurance coverage.