Even though no one looks forward to tax season, it is coming up fast and there is no way to avoid it.
There are some things to do in the waning days of 2024 to get ready for tax time.
First, you are going to want to get organized. Take the time now to find and look over your necessary documents. Groove-Money.org suggests finding your prior year return as a starting point. You should also have on hand any W-2s from employers. If you have left a job during the year, contact the office to make sure they have the correct address on file, in case you have moved.
You will need records from interest bearing accounts and retirement account income.
If you have a side hustle or work as a freelancer, you’ll need a 1099-NEC. You’ll also need bank statements that show other income, like renting out a property.
That all deals with the income side. There is also a list of typical tax breaks to consider. They include purchase of an electric or hybrid car, adding solar panels and batteries to a house, mortgage and tax payments on that house, tuition or interest on student loans, expenses on a business or side business and contributing to retirement or health savings accounts.
Those are the most typical steps for younger residents and people with simple tax situations. Older citizens with more sophisticated income and investment situations can also face a bigger hit when it comes to taxes.
However, there are some ways to lessen the pain of a big tax bill, according to experts and companies who deal with the issue day in and day out.
TurboTax suggests several moves that can help you out if you are looking for some tax relief.
One of those ways is to defer income. If you are self employed, you can delay billing until late December so that the payments come in early in the new year. This usually applies only to those who expect to be in the same or lower tax bracket next year.
Additionally, if you work for a company that issues year-end bonuses and you have the option, you can defer that bonus until January.
More common is to take some year end deductions while you still can. One way, of course, is to donate to a charitable organization. But make sure to retain a receipt to file with your return.
You could also pay property tax or state income tax that is due by the middle of January now. You might also consider paying a doctor’s or hospital bill now so that you have that deduction for this year.
When you file, TurboTax also suggests considering itemization instead of taking the standard deduction. Many income tax software programs can help determine if you can save money by itemizing.
People who are on the border for itemization/ standard deduction -- $14,600 in expense for singles and $29,200 for joint filers – often use a see-saw method from year to year. For example, this year they would gather as many deductions as possible so that they get a larger reduction in their tax bill and use as few as possible the next year and take the standard deduction.
Now is also the time to sell losing investments, using the loss to cancel taxable gains. If the losses are significant, they can eliminate the tax due on any gains and up to $3,000 can be used to offset other income. Anything over $3,000 in losses can be rolled over to next year.
No matter what your tax situation is, refund or liability, starting early on the process and gathering the needed paperwork and forms will go a long way to eliminating that panic in the pit of your stomach when Tax Day rolls around.
And don’t be afraid to take advantage of local experts or assistance organizations who can advise or prepare your return free or for a reasonable cost. It is far better than having the IRS come pounding on your door.