Tax season doesn’t have to be painful. With a little planning, you can be better prepared for the upcoming tax season; you may even be able to save some money. Here are some tips and strategies for this year’s taxes.

Understand Your Tax Bracket

Do you know your tax bracket? There’s a total of seven different tax brackets based on your annual income and filing status. You can find 2023’s tax brackets on the IRS website. Knowing how much you’ll be taxed will help you be better prepared when filing your income tax returns.

Choose Your Deduction

By taking a deduction, you’re lowering the amount of your taxable income, which saves you money. You can choose either the standard deduction, which is a flat deduction based on your filing status (e.g., $13,850 for singles and $27,700 for married filing jointly).

You also have the option to itemize deductions. This method makes sense if you have qualifying expenses that exceed the standard deduction. But it takes a little more work, so make sure that you have documentation, such as receipts, to validate every deduction you make.

Take Advantage of Tax Credits

While a tax deduction simply lowers your taxable income, a tax credit is a dollar-for-dollar “discount” on your total tax bill. For example, a $2,000 credit will lower your tax bill by $2,000 and can even come back to you in the form of a refund. Common credits for 2023 include:

  • Adoption Credit: For adoption costs
  • American Opportunity Credit: For college costs
  • Child and Dependent Care Credit: For daycare and related costs
  • Earned Income Tax Credit: For those with low income
  • Residential Energy Tax Credit: For energy-efficient home improvements

You can take advantage of as many credits as apply, which could lower your tax bill considerably.

Save Your Tax Records

Save your tax returns and any documents you used to complete them for at least three years. That’s how long the IRS has to audit your return, though the limit can extend tothe following lengths in certain circumstances:

  • Six Years: If you underreported your income by over 25%
  • Seven Years: If you wrote off a “worthless security”
  • Indefinitely: If you are suspected of tax fraud or failed to file a tax return

Thankfully, software programs let you store digital records so you can easily stay organized.

Plan Ahead for Next Year’s Taxes

The present tax season is also a good time to look ahead to next year’s taxes. Consider strategies such as:

  • Adjusting your employer’s W-4 to avoid a large tax bill
  • Reducing taxable income by investing in a tax-advantaged retirement account
  • Saving receipts to take more deductions
  • Paying quarterly estimated tax payments to avoid a large one-time payment

The latter step is especially important for small business owners or freelancers since you won’t have an employer withholding taxes on your behalf.

Make Tax Season Easier

Given the serious impact it can have on your financial present and future, tax season is an incredibly daunting time for many. However, by engaging in appropriate planning, you can lessen this burden and file your return with confidence.

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