The 2022 tax deadline for both federal and Michigan state taxes is fast approaching. If you haven't already completed your returns, we have compiled seven tips that will simplify the process and help you make your experience a little more pleasant.
Tip #1: Utilize Technology
Tax filing preparation software has made great strides in the last decade. With the use of these products, you can complete your returns with more speed and accuracy. The software simply prompts you to supply the necessary information and fills the required fields. The automated systems can make the overall experience simpler and less stressful by reducing time spent, decreasing errors, and finding deductions of which you weren't aware.
Tip #2: Start Early
I'm sure you've been told many times not to wait until the last minute to begin your tax returns. Starting earlier will reduce the stress you feel while filling out your information. It also means that you don't have to tackle the process all at once and you can take your time to check for any errors or omissions. Finally, if you start early, you can file early which usually results in you receiving any returns earlier as well.
Tip #3: Avoid Mistakes and Monitor Changes
As mentioned earlier, getting an early start allows you more time look over your returns before filing. This is an important step as accuracy is important when filing with the IRS.
Tip #4: Monitor Changes
It is important to make sure you are up to speed on the latest IRS rules. Some regulations on deductions change from year to year, so it is important to have time to review whether the deductions you are claiming are valid and that you aren't missing any opportunities.
Tip #5: Report Everything
Did you pay off any student loan debt? Does your insurance have an impact on your returns? Did you make any charitable contributions last year? Did some of your investments take a hit? Make sure you report anything that may affect your return. It’s better to overreport than to leave items off your returns.
Also, make sure to report all income streams in their entirety. This includes the extra cash you picked up in the gig economy. The IRS is likely to discover any omissions.
Tip #6: Choose Between Standard Deduction & Itemizing
Choosing standard deduction route is a great option if you would like to simplify your filing. For the 2022 tax year, the standard deduction amount is $12,950 for single filers, $25,900 for married couples, and $19,400 for head of household.1
You can reduce the taxable amount on your return using the standard deduction. However,
Itemizing your deductions and income may enable you to reduce your taxable amount even more. Some common deductions include:
- State and local taxes
- Charitable contributions
- Casualty loss
- Business expenses for which you weren’t reimbursed
- Medical expenses
- Mortgage interest
If you’re already an itemizer, make sure you are up to date on any changes to the tax code. As mentioned above, they may have affected certain deductions.
Tip #7: Understand Tax Credits
Tax credits act as reductions on the amount of tax owed. It’s important to understand that they act differently than a deduction. They do not impact your taxable income and they can't change your tax bracket.
One example of a tax credit is the Earned Income Tax Credit. This helps low- to moderate-income workers and their families receive tax relief. If qualified, these credits can be used to reduce the taxes you owe and potentially increase your return.2
According to a report by the Treasury Inspector General for Tax Administration, approximately 5 million potentially eligible taxpayers do not claim the credit each year, which results in about $7 billion in unclaimed benefits annually.3 You should always check to see if your eligibility for any tax credits to avoid missing opportunities.
If you have any questions, speak with your CPA or other trusted tax professional regarding your situation. An experienced professional can answer your questions and empower you to complete the tax season with confidence.
This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.