Early preparation may help taxpayers glide through tax season

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Looking back may be the first step in moving forward on filing taxes for 2023.

Some key tax documents have already started to arrive in emails and mailboxes, signaling it’s time to get ready for tax season.

Taxpayers may want to view their 2022 return as they prepare for filing their 2023 return. One of the first questions to consider when organizing tax filing documents is what has changed from one year to the next.

A lot can happen in a year’s time that may impact income tax filing. Life changes, buying or selling a home, are among the big events that can impact taxes. Some examples:

• Do the same number of dependents apply?
• Are there new investment accounts with income to report?
• Have there been distributions from retirement accounts?

Once you have reviewed the prior year’s tax filing, you can make a checklist of the forms that you know you will need for 2023. This can help you keep track of what documents you have and others you are still waiting for.

Early preparation can be key

Some data can be gathered and calculated in advance, such as charitable donations, as of the end of the calendar year. For taxpayers considering itemizing deductions on their return, an accurate list of charitable contributions – including cash and property – is essential. It’s important for taxpayers to understand the rules around claiming a charitable contribution as a tax deduction.

• For any contribution of $250 or more you must obtain and keep a written confirmation from the qualified charity reflecting the amount of cash or a description of the property donated
• For non-cash contributions, a good faith estimate of the value is required
• The amount of a charitable deduction will depend on the property being donated and the type of organization receiving the donation. See “Understanding charitable giving strategies”
• For more information, see IRS Publication 526, "Charitable Contribution"

State and local taxes can be deducted up to $10,000 per individual if you itemize. Gather up your real estate tax bills and excise tax bill for the year. Some states allow a tax deduction for use of public transportation to commute to work. It can pay if you keep your receipts for subway and train tickets and tally them in advance for your tax preparer.

Education is another area for tax advantaged opportunities. Be mindful of what you need to document to take advantage of the American opportunity and lifetime learning tax credits. Also, college students may be able to deduct a portion of their tuition and fees or the interest paid on student loans. For information about these programs, see “Tax Benefits for Education.”

Out-of-pocket medical expenses may provide a tax deduction for some taxpayers if the total is more than 7.5% of adjusted gross income.

If you have made some home improvements, there may be some eligible deductions. Explore the IRS website to determine what programs were in place for 2023 for energy efficiency. Find out what has changed or what may be new for additional tax credits.

Create a checklist

Once tax forms arrive, use a checklist to keep track as you put them in a folder or scan them into a digital file.

• Organize W-2 tax documents from employment and other forms such as 1099 forms from investments
• Additionally, make sure you monitor notifications for forms that you may need to report other sources of income, such as freelance work (also represented by a 1099 form)
• Make sure records are ready that document distributions from certain accounts such as 529 college savings plans. You need to retain documentation on qualified expenses such as tuition and room and board, as well as other expenses such as computers or WIFI access. For more information on this recordkeeping, see IRS Publication 970, "Tax benefits for education”
• Did you receive distributions from retirement accounts, and do you have records to determine which portion is taxable? For most taxpayers, distributions from non-Roth IRAs and retirement accounts will be reported as ordinary income on the tax return. However, some individuals may have made non-deductible contributions in the past. You need to make sure you have records to determine if a portion of an IRA distribution, for example, is non-taxable. (A taxpayer would generally have to refer to previous filing of IRS Form 8606 to determine if non-deductible contributions have been made in the past to an IRA.)

Getting organized

While the meeting with a tax preparer may be months away, getting a head start on organizing can be helpful to ensure an efficient tax filing. Getting organized now can make the process easier. Remember the tax filing deadline and consider using direct deposit for refunds. Make sure this information is up to date as direct deposit is typically the most expedient way to get your refund.

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