Filing our taxes isn’t always as straightforward as we’d like it to be. But it doesn’t have to be as complicated as we tend to make it, either. By gathering documents, information, and handy tips throughout the year, we can be ready to face our taxes head-on when the time comes.
And that can lead to less scrambling and frustration at the start of the year. Read on for some of our favorite tips for preparing for and filing your taxes.
Rather than waiting until January or February to start digging through receipts, bills, and invoices, put them all in the same place throughout the year. Keep a folder for physical copies and a spreadsheet for electronic ones.
Tally up every charitable contribution, business-related travel expense, and student loan interest payment. By keeping track of these numbers throughout the year, you’ll know right away if you’ll be better off taking the standard deduction or itemized when you’re ready to file.
While most people choose to take the standard deduction, it’s not always the best choice, and can often be the default option chosen out of convenience. Our expenses, income, credits, and deductions change, so it’s always a good idea to track our numbers and make the most informed choice.
Remember those charitable contributions we mentioned earlier? Well, there’s some good news attached to that giving. You can deduct charitable contributions whether you choose to itemize your deductions or take the standard deduction.
Some deductions can be claimed either way, it’s not always one or the other. This is another reason we recommend holding on to receipts, invoices, and other documents throughout the year. The current standard deduction is $12,550 for single filers, $25,100 for married couples filing jointly, and $18,800 for heads of households.
If your individual tax deductions add up to a number higher than the standard for your filing category, itemize your deductions to get the greatest savings or returns.
When the time comes to file your taxes, properly claiming your children, friends, or relatives you’re supporting can ensure that you’re filing efficiently and saving the most money. Many people don’t realize that there are two types of dependents, not just one. Many only claim qualifying children as dependents, without realizing that you can claim qualifying relatives, too. And each exemption for a qualified dependent reduces your taxable income, saving you money.
You can use the IRS’s Whom May I Claim As a Dependent survey to determine your options. The basic rules are as follows: qualifying children must be younger than you and either younger than 19 years old or a student under 24.
The rules for qualifying relatives are a bit more complex. You can determine who qualifies by following the link above and answering the survey questions or working through the IRS’s qualifying dependent chart.
If you qualify, don’t forget to claim the Recovery Rebate on your taxes this year. Parents of children born in 2021, guardians, and other eligible people who did not receive all of their third-round economic impact payments can claim up to $1,400 per person.
Most other eligible individuals have already received the full amount and won’t need to claim the credit on their tax returns. If you are eligible to claim the Recovery Rebate, you will have already received or will soon receive a letter from the IRS reminding you to do so.
You may also be eligible for the child care expense credit. For this credit, you may be eligible for up to $8,000 for one child or $16,000 for two or more. And even better, you may be able to write off up to 50% of those expenses, depending on your income.
If your taxes are simple enough for you to file on your own, and you make under a certain income limit, the IRS provides a platform where you can file your taxes for free. If you have an adjusted gross income (AGI) of $73,000 or less, you can use their online free file.
They connect you with a qualified partner, you answer simple questions about yourself and your income, and the guided prep system does all of the math for you, including identifying potential credits and deductions you can take advantage of.
Each free file company the IRS works with guarantees the accuracy of their return calculations, so this is a safe and affordable way to file.
*A note from Spotloan: We hope this article has provided some helpful tips as you prepare to file your taxes. However, as with any important tax-related decision, we suggest that you reach out to a qualified tax professional with any questions you may have.