Key Takeaways From Your 2022 Taxes
Now that tax season is officially over for most of us, it can be tempting to put those documents away and not think about them again until next year.
Before doing that, however, consider checking your returns one more time to see if there’s anything that might save you money and make tax filing season easier next year.
Here are five questions to ask yourself before you close the books on last year’s taxes:
1. Did You Withhold the Right Amount?
If you got a large tax refund this year your employer may be paying too much to Uncle Sam on your behalf. You can file a new W-4 with your human resources department to reduce your withholding amount. That way, instead of getting a big refund next spring, you’ll see a slightly larger check each payday.
If, however, you ended up owing taxes at the end of the year, you could increase the amount your employer withholds each month. Your paycheck would be slightly smaller but you’d avoid getting hit with a giant tax bill when you file.
Even if your withholding was correct in previous years, it might need adjusting if your personal situation changed. For example, maybe you got divorced or had a baby. It might also need adjusting if you have income from other sources and you don’t pay quarterly.
“If you find yourself in a situation where you have a lot of investment income or interest dividends coming in, you might want to adjust your holdings to cover that,” Barbara Taibi, partner, Private Client Services Group for Eisner Advisory Group LLC in Iselin, New Jersey, says.
2. How Much Interest Did You Earn on Your Savings?
You’ve likely gotten used to barely seeing an interest income on your tax returns because interest rates have been near zero on savings accounts for years. The recent rise in rates, however, means it’s finally possible to earn a return on your savings. If your interest income line is still paltry, it might be time to shop around for a high-yield savings account that pays a better rate.
3. Could You Take Advantage of Recent Market Losses?
Harvesting capital losses, or intentionally selling stocks that have lost money, is a smart strategy to save on taxes. You can use up to $3,000 per year to offset capital gains or ordinary income, and if you have more than that in losses, you can carry it forward to the following year.
“If you are in the 22% marginal tax bracket, you are paying taxes on their capital gains and dividends,” Rob Burnette, financial and investment advisor at Outlook Financial Center LLC, says. “That can be reduced by tax loss harvesting each year and looking for other ways to reduce your adjusted gross income.”
For example, high earners contributing to a Roth 401(k) may be better off making traditional 401(k) contributions, Burnette says, to get the immediate tax deduction to lower gross income.
4. Did You Have Trouble Pulling Together Your Documents?
If you struggled to meet the tax deadline because you couldn’t find receipts or other documents you needed to file, now might be a good time to put an organizational system in place to set you up for next year. Set aside a physical box or envelope – or an online file – and start putting relevant documents in there now. That way, when it comes time to file next year you’ll be ready to go.
5. Were You Happy With Your Tax Preparer?
It can be very hard to connect with a new accountant at the height of tax season when they’re slammed with existing clients. But if you’re interested in potentially changing tax preparers, now’s a great time to start interviewing contenders. Look for someone with whom you feel comfortable and who has experience working with taxpayers in financial situations like yours.
Source: US News & World Report