If youre still nursing a financial hangover from the 2022 holiday season, its time to get back in the drivers seat because tax season starts next week.
According to the IRS, January 23 marks the beginning of the 2023 tax season and the first day that the agency will begin accepting and processing 2022 tax year returns.
If you planned to hold off until April to think about your taxes, you may want to rethink that plan. Getting started earlier can help ensure that you arent scrambling for tax documents at the last minute and that any tax refund you receive makes its way to you sooner rather than later.
Make note of important deadlines in your calendar
There are several tax deadlines youll need to be mindful of for the 2023 tax season. Before you begin gathering tax documents and receipts, these are the key dates youll want to mark on your calendar depending on your unique tax situation.
- January 13: IRS Free File opens. For taxpayers who earned $73,000 or less in 2022, the IRSs Free File program lets them file their taxes electronically for free using brand-name software provided by commercial tax filing companies.
- January 17: Due date for tax year 2022 fourth quarter estimated tax payment.
- January 23: The start of the 2023 tax season when the IRS will begin accepting and processing individual 2022 tax returns.
- April 18: National due date to file a 2022 tax return or request an extension.
- October 16: Due date to file for those requesting an extension on their 2022 tax returns.
5 ways to prepare for tax season
Whether youre a first time filer, or youre already familiar with the tax season drill, there are a few steps every filer will need to follow to ensure that the process goes smoothly. Plus, many tax pros and softwares are already accepting tax returns now so that they can submit them on the first day the IRS begins accepting and processing returns. And the earlier you file, the sooner you can expect a tax refund if you plan to receive one.
1. Gather your important documents
To ensure that all of the information youre reporting to the IRS is accurate, youll need to gather your tax records and documents. These forms may include:
- A W-2 from your employer(s)
- A 1099 from banks, issuing agencies and other payers including unemployment compensation, dividends, pension, annuity or retirement plan distributions
- Form 1099-K, 1099-MISC, W-2 or other income statement if you worked in the gig economy
- Form 1099-INT if you were paid interest on bank accounts such as a money market accounts, certificates of deposit (CDs), or savings bonds
- Any income documents or records of transactions related to digital assets like cryptocurrency, NFTs, or stablecoins
- Any letters or notices you may have received from the IRS throughout the year
- Form 1095-A, a health insurance marketplace statement
Make a list of all income you earned in the last year, says Michelle Guissinger, CPA, CFP, CDFA, vice president and financial advisor at Wealth Enhancement Group in South Carolina. This can be done by reviewing deposits to your bank account or by reviewing amounts received on a mobile payment app such as Venmo. Most of these income sources should send you a tax document, but this gives you a list of what income documents you should be expecting.
You may only receive one type of document, or a few of them depending on how you earn income, the types of financial accounts you have, your investments, and more.
2. Max out your retirement account contributions
A new year may have already started, but there are still money moves you can make now to reduce your 2022 tax bill.
While the Dec. 31, 2022 deadline for 401(k) contributions has passed, you can still make contributions into your traditional or Roth individual retirement accounts (IRAs), up until April 18, 2023.
Maximizing the amount contributed to your IRA isnt only a wise tax move, but your future self will reap the rewards of your retirement account balance having extra funds in it. And thanks to the magic of compound interest, you can expect that amount to grow significantly between now and when its time for you to clock out for good. The annual contribution limit for 2023 is $6,500, or $7,500 if youre age 50 or older (2019, 2020, 2021, and 2022 is $6,000, or $7,000 if youre age 50 or older).
3. Consider any tax credits or deductions you may be eligible for
Deductions can reduce the amount of your income before you calculate the tax you owe and tax credits can reduce the amount of tax you owe or increase your tax refund.
There are tax credits available for individuals with children or dependents, credits for investing in your education, saving for retirement, purchasing an electric vehicle, or adding solar panels to your home. There are also tax deductions available for student loan borrowers who paid interest on their loans within a given tax year, taxpayers who made a charitable donation or made contributions to a health savings account.
This is why its important to not only have a clear picture of the money you brought in this past year, but also the money that went out to determine if any money you spent could be used to reduce your tax bill or increase your refund.
4. Think about how youd prefer to file your taxes
Some taxpayers prefer to use a tax professional to help them prepare and file their taxes in hopes of avoiding errors that may crop up and could lead to delays in receiving their refund. It also doesnt hurt to have a professional on your side who knows all of the ins and outs of filing taxes and could advise you on the best money-saving tax strategies throughout the year.
Although, for many taxpayers, experts say that going the DIY route is more than okay.
Filing income taxes for the first time can be confusing and intimidating. Even the tax software programs aimed at assisting new filers are challenging as they navigate taxpayers through the complexities of the Internal Revenue Code, says Karen Wallace, CPA and visiting professor in Adelphi Universitys Willumstad School of Business. Nonetheless, I strongly encourage first-time filers to prepare their own tax returns. For taxpayers whose adjusted gross income is $73,000 or less, free online tax preparation is available via the IRS Free File program.
Still, there are instances when you might consider enlisting a tax pro. Changes to your income, marital status, filing status, and living situation can all have greater tax implications come April. Wallace says that there are instances when working with a tax pro could make sense, including if you
- Are self-employed
- Own rental property
- Have recently moved to another state
- Work in more than one state
- Sold your home during the tax year
- Had a change in marital/filing status
- Actively trade stocks
5. Make a plan for your tax refund
The IRS issues most refunds less than 21 days after your return has been submitted and processed. Take this time to make a plan for how youll use your tax refund (if you expect to receive one). Receiving a lump-sum of money in your bank account can lead to frivolous spending if you dont have a plan in place for how youll use those funds. Think carefully about how to make that money have the most impact. That could mean throwing it at your credit card debt, using it to boost your emergency fund, saving it for a bigger financial milestone like purchasing a home, or a combination of a few different financial to-dos.
The takeaway
The thought of filing your taxes may seem daunting, especially if youre a first-time filer, but starting early, getting organized, and doing your research to determine the best ways to trim your tax bill can all make the process far less painful when the deadline rolls around.
