Nearly one in eight American taxpayers file for a tax extension. That’s about 19 million taxpayers. Are you one of them? If so, be sure to put October 17 on your calendar. It’s your new tax day. I also suggest you keep plugging away now (and perhaps reaching out for assistance from a financial organizer / personal money manager) rather than miss out on summer fun because you still have taxes to do!
If you’ve already filed, tax day is in the rearview mirror. Kudos to you for making it to the finish line!
While it’s tempting to simply stow away your tax packet, take a few extra steps now to make the process next year less drama-filled. And maybe get some useful information about your income, investments, and expenses/deductions included in your returns.
Here are 4 practical tips from Personal Money Manager™:
#1: Getting a refund?
Read here for ways to check on the status of your refund. Or maybe you will need to pay estimated taxes. If you have estimated taxes, do you have the required vouchers? Mark the 2023 payment dates on your calendar and keep track of what you paid. Alternatively, ask your tax preparer if they can facilitate estimated tax debits from your bank account.
#2: Did you actually itemize in 2022?
Look for Schedule A in your federal return. Some clients routinely add up their cash and non-cash donations and medical expenses but don’t look at the finished tax return to see if they benefited from this extra effort. Keep in mind that your itemized deduction must exceed your standard deduction for you to benefit from itemizing. Some expenses—like long term care insurance premiums and state and local taxes—are deductions beyond the standard one or may affect only your state return. See #4 below for the paperwork retention-related side of this.
#3: Set up your files.
Set up a file for the 2022 tax returns and supported documentation that was returned to you. Be prepared for 2023. Now’s a good time to set up 2023 tax file to catch any tax-related paperwork coming your way—perhaps Salvation Army receipts that disappeared last tax time?
#4: Consider shredding tax files prior to 2015.
That could make room for tax files for subsequent years. The latest thinking is that tax returns should be saved indefinitely. That’s because while transcripts of past tax returns, tax account information, wage and income statements, and verification of non-filing letters can be ordered from the IRS, copies of the actual tax return with all the schedules are not supplied.
More about #2 (above). If you did not end up itemizing, there is no need to keep back-up paperwork to substantiate expenses that didn’t impact your taxes. Keep in mind that there may be non-tax reasons to keep these, but that’s a discussion for another newsletter/blog. I’m talking about proof of medical expenses, donations, and unrelated paid invoices—like utility bills—that tend to clog clients’ files.
Tax items with different deadlines
While we think of filing income taxes as an annual ritual, there are tax documents that don’t follow that schedule. For example, stock purchases and contributions to retirement accounts can have a tax impact but won’t be reflected in your annual tax filings. For homeowners, receipts for home improvements should be kept for their potential tax benefit but only when you sell your house.
Want to dig deeper into your return and see what it says about your personal finances that could be helpful this year? Ask your tax preparer for some pointers when you and they are not under the pressure of a tax deadline. While I am the paperwork professional, they are your go-to advisors on all tax matters.
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