Filing taxes can be a complex and stressful procedure for anyone and can be even more challenging if your finances are complicated or accounting is not your strong suit. Some people have said they would rather have a root canal then deal with a complicated tax return!
This process is additionally problematic for anyone with less-than-stellar organizational or time-management skills, as misplaced paperwork can send you scrambling at the last moment. While you can always hire an accountant, there are still many things you have to do/plan on your own.
However, if you start early and slowly you can make your life much easier. Here are some steps you can take right now to get a head start for tax time and make filing your 2022 taxes much smoother. Best of all by planning ahead and taking some of these simple steps you can get more accurate taxes while avoiding any processing delays for tax refunds.
Update Your Information
One of the first steps you can take is to access your online (free) account on irs.gov. You will be able to access a lot of useful information, including how many Economic Impact (Stimulus) payments you received as well as expanded Child Tax Credit (CTC) payments.
Using “Get Transcript” will provide you access to your tax records and most recently filed return. Your free IRS transcript is a great resource and one I recommend getting before and after your file your return.
You will also find options that allow you to make a tax payment or set up payment agreements, update your email address, allow authorizations from a tax professional, and determine whether you want paper or electronic notifications.
Make sure to notify the IRS if your address has changed. For legal name changes, you will need to inform the Social Security Administration.
Updating and ensuring that your information is accurate is an important first step in your planning. It will also improve the odds that any refunds you are due are paid correctly.
Create an Organization System
Right now is the best time to start coming up with a filing and organization system that works for you. You will be collecting a lot of documents and information, and if you specify a place to safely keep all your paperwork, it can save you a lot of headache each year.
Take the time to build and modify your filing as you receive more information and learn new ways to manage your materials. A little extra time upfront can save exponential amounts of time down the line.
Start collecting your tax documents as soon as possible. You will need to have all the documents required for your situation before you can actually file, and these are some which you may need:
- W-2 employer documents
- Form 1099 for dividends, unemployment, pensions, retirement plans, or similar situations
- Form 1099-INT if you received any interest
- Virtual currency transaction records
- Any other applicable income documentation
Tip: Make copies of all your documents and keep them in a separate, secure location as a backup. Keeping your paperwork on a computer (or better yet, the cloud) is a great idea, but you should always keep physical copies of your most important documents where you can easily access them.
Check Your Individual Tax Identification Number (ITIN)
Make sure that your ITIN has not expired! If it has and it is needed for Federal U.S. Tax Return, you will need to apply for a renewal by filling out Form-7.
A quick check for expiration involves the middle numbers. If they range from 70-88, they have expired. If your ITIN was assigned before 2013 and it has middle digits in the range of 90-99, it has also expired.
If you did not use an ITIN on your returns for 2018, 2019, or 2020, the expiration date is December 21st, 2021.
Modify Withholding Accordingly
Consider whether your life circumstances have changed dramatically in the last year. For instance, if you got married, had a child, suffered a divorce, or had changing employment situations, you may need to update the amounts withheld from your paycheck.
Another indicator that you may need to make modifications is whether you received a large refund last year or had to make a significant payment.
If you had a large refund, you might want to consider having your employer take out less to provide you with more funds on each check and do the opposite if you had to make a large payment.
Finding a nice balance can help your financial situation, especially if you find yourself struggling to make ends meet each month. Try a Tax Withholding Estimator to help you decide an appropriate amount for each check and you can speak to your employer to update and submit a new W-4.
Child Tax Credits and Recovery Rebate Credit
There are a few special circumstances that may apply to your 2021 taxes, so it’s important to understand how to handle these situations in advance.
Advanced Child Tax Credit Payments
If you received these tax credits, you will need to make comparisons between what you have already received and what you are eligible to claim.
This is important because if you were awarded more funds than what you were eligible for, you will have to repay the difference in those amounts when you file. Knowing this in advance can help you prepare for this eventuality.
Recovery Rebate Credit
If you did not receive the third stimulus or received a partial amount, you may be eligible for a recovery rebate credit. If you file using online software, it can help determine if you are eligible to receive this money, which will appear as a refund or go toward any payment you are required to make.
If you do not, you may need to discuss it with your tax advisor or perform some research to determine whether you qualify or not.
If your main goal is to get your refund as soon as possible, you will definitely want to consider filing electronically and using direct deposit. This is the fastest way to get your refund and it will be deposited directly into your account.
With that in mind, you need to make sure that the bank account you have on file is the one you wish to use and that it is an open account to which you have access. In other words, check to make sure you didn’t close down the account which you have linked to your direct deposit.
Using this method has several benefits, which include eliminating the waiting period and risk associated with paper checks, saving taxpayer money on the costs of printing paper checks, and naturally, the expediency and convenience associated with online transactions.