With 2022 wrapped up, now is a great time to start thinking about your year-end finances. Tax season may seem far away with tax returns due on or before April 18, 2023, but there are benefits to planning ahead. Documenting your financials sooner rather than later makes it easy to remember where, and how, money was spent. Waiting until the last minute can leave you open to leaving forgotten expenses on the table. Besides, the earlier you file, the earlier you can potentially receive your refund.
How you complete your tax return will depend on your individual circumstances, but here are some general tips for the upcoming tax season to keep in mind:
Get your paperwork in order
Designate a folder for this year's tax return. Include receipts for charitable contributions, medical expenses, or any other deductible amounts you received during the year. Once the rest of the forms start arriving in late January, it will be easier to stay organized.
Find a copy of last year's income tax return. You might need some of the information to file this year’s return. You can also skim each line that contains an amount to make sure you don't overlook anything. By reviewing your prior return, and comparing it to current forms, you can see how the forms have changed from year to year, and where you might benefit from a new deduction or credit.
If you are planning to e-file, make sure you have your PIN number handy. This is the self-select PIN that taxpayers choose to electronically sign their returns
Consider itemizing deductions and find eligible expenses
Medical expenses and charitable contributions can only be deducted if you itemize your income taxes, so check the IRS website to see what qualifies so you get the biggest benefit. Taxpayers should take the higher of itemized deductions or the standard deduction (if available), which has been increased again for the 2022 tax year. It should be noted that not all taxpayers are eligible for the standard deduction, including married individuals filing separately whose spouse itemizes
Gather medical expenses such as out-of-pocket costs for doctors' visits including co-pays, prescriptions, and mileage to and from medical appointments. Since the cost of gas was higher in the second half of 2022, the standard mileage rate for medical appointments or moving expenses has increased.
Summarize charitable contributions including cash, clothing or furniture donations, or donations made to religious organizations. Don't forget to include fundraisers on social media that may be linked to PayPal or a credit card. Confirm that the charitable organization is a registered 501(c)(3) charity before reducing your income taxes.
Other expenses that might be deductible if itemizing include:
- certain state and local taxes
- certain amounts for home mortgage interest
- vehicle expenses, if you use your car for business purposes
- home and office expenses, if you are a business owner and work primarily out of your home (this is not available for employees who work from home)
- miscellaneous business expenses. For certain professions, individuals can even deduct subscriptions to magazines that are related to their businesses or costs for professional conferences.
Review your IRA and Flexible Spending Accounts
The end of the year doesn't mean tax saving options for your 2022 tax return are over. If you don’t have an IRA, you can still open an account. If you already have an IRA, but haven't contributed the maximum amount for the 2022 tax year, you can put money aside until April 18, 2023.
Some employers allow the usage of a Flexible Spending Accounts (FSAs) for certain healthcare costs. Funds in an FSA must generally be used within the plan year or forfeit. . Check the balance in your account to make sure you aren't leaving money on the table.
Learn about new tax changes
In 2021, new legislation temporarily expanded certain tax benefits to help people recover financially from the pandemic, but most of the provisions have reverted back to previous amounts for the 2022 tax year. Charitable contributions are now only deductible for people who itemized when, in 2021, this deduction was also available for people who took the standard deduction.
One new benefit in 2022 is that the residential clean energy credit, which can be taken on the purchase and installation of items such as solar panels for a residential home, has increased to 30%. Teachers can expense up to $300 of out-of-pocket expenses. This includes amounts paid for Covid protection like masks and cleaning supplies. And a new list of electronic vehicles is available for the 2022 Plug-In Electric Drive Vehicle Credit.
File for Extension
If filing your tax return by April 18th isn't possible, you can file a six-month extension and finalize your tax return by October 16, 2023. Just make sure you calculate and pay enough income taxes by April 18th. The extension allows you to file late, but not pay late.
Finally, you can change your address, check the status of your refund, review notifications, follow tax law changes, or even find a tax professional at the IRS website.
For More on Personal Finance Topics
If you have more questions about other personal finance topics that matter to you, visit the Learning Center on TD Bank’s website
We hope you found this helpful. This article is based on information available in January 2023 and is subject to change. It is provided as a convenience and for general information purposes only. Our content is not intended to provide legal, tax, investment, or financial advice or to indicate that a particular TD Bank or third-party product or service is available or right for you.
For specific advice about your unique circumstances, consider talking with a qualified professional.