According to the Internal Revenue Service, the formal tax season began on Monday, January 23. To make the 2024 tax filing season easier, here are four helpful tips that you should do before the end of January.
#1 Plan how you are going to file
It begins with planning. Whether you intend to utilize a professional tax preparer or tax preparation software or handle the return on your own, gathering information and tax documents will be necessary. Start as soon as possible, especially if you have complex investments or are a business owner. It will be useful to start now when you are receiving various tax forms (Form W-2, Form 1099 including 1099-MISC, 1099-INT, 1099-K).
Minimizing your taxable income for the year is still possible, which might dramatically reduce your tax liability.
#2 Consult a Tax Expert (and Hire One Now)
Choosing your filing option early on might make navigating taxes easier. For some, online tax software provides a quick, economic, and simple means of completing the task with minimal complexity. Others may benefit more from the expertise and experience offered by a professional tax preparer.
Daniella Flores, Jose Hernandez, and Kenneth Chavis, three financial professionals, urge engaging with a tax specialist when the case calls for it. Perhaps you operate a business, are self-employed, trade cryptocurrencies, or have rental income. The more complex your tax position, the more it makes sense to seek professional assistance.
If you are a company owner, consulting with an experienced CPA that can assist you with proactive tax planning will ensure that you are not only compliant but also preparing you to take steps to save you six figures or seven figures in future taxes, Chavis advises.
A tax professional can provide guidance, analyze your records, and submit your tax return, relieving you of a “big burden,” according to Flores, founder of the money, career, and side hustle resource site I Like to Dabble. A tax professional may help you save money on your tax statement by maximizing deductions and credits you would have missed otherwise. The fee might range from $100 to $1,000 or more; however, much will rely on your tax status. Organize your tax records in advance to save time and money when submitting them to your tax preparer.
The creator of Financial University, Hernandez, asserts, A qualified tax counselor is definitely worth their cost and may save you a ton of problems and money over time.
If you want to deal with a certified CPA or tax accountant, it may be prudent to hire one as soon as possible. According to Michele Cagan, CPA, founder of Single Mom CPA and author of “Debt 101,” many tax preparers are taking fewer customers this year, and it may cost more than in the past because it’s more difficult to locate someone.
According to Cagan, many of her colleagues are not actively seeking new business, and many are reducing their customer roster. Cagan adds that she, too, is significantly restricting her tax clientele.
You may locate credentialed professionals in your region through databases like the IRS Directory of Federal Tax Return Preparers and IRS-affiliated professional groups like the National Association of Enrolled Agents and the American Institute of CPAs. If you are utilizing tax preparation software and want extra assistance from a tax professional, the cost will largely depend on how much assistance you want.
#3 Don’t Overlook Key Business Expenses
This year, millions of Americans established companies. According to three entrepreneurs and tax experts, you may use your business or side gig to minimize your tax burden if you fall into this category. You should take advantage of this opportunity as much as possible.
Shang Saavedra, a financial expert and developer of Save My Cents, explain that you may deduct a significant amount of money from your income for tax purposes that you would not ordinarily be able to if you were a W-2 employee.
Many company costs are dollar-for-dollar deductible if they are “ordinary and essential” for your trade or industry. For instance, you can deduct business-related travel expenditures if you hold real estate interests under an LLC, according to Rebecka Zavaleta, a businesswoman who lives overseas and owns properties in numerous states. When you deduct your company costs, your taxable income is reduced, which might place you in a lower tax rate.
A travel IT expert and founder of Wander Onwards, Vanessa Menchaca-Wachtmeister, explains that small company owners are generally careful with their expenses because they fear being audited. She advises that you should not let the fear of being audited prevent you from maximizing your deductions as long as you need the money to operate your business or side hustle. If you started a new firm this year, you could deduct up to $5,000 in startup costs and an additional $5,000 in organizational costs. Any leftover expenditures must be amortized or stretched out over 15 years.
Menchaca-Wachtmeister explains the IRS realizes that enterprises require technology, travel, and capital. As small business owners, many frequently fear deductions, but Amazon pays almost no tax.
#4 Optimize tax-favored investment accounts
Consider contributing more to tax-advantaged investment accounts to minimize your taxable income.
Roth IRA, regular IRA, 401k, 403b, Thrift Savings Plan, and health savings account can be utilized (HSA). You may be qualified for one or two, which may “save you hundreds of thousands of dollars in taxes in the future,” according to Jeremy Schneider, financial consultant and creator of Personal Finance Club.
It is probably too late to switch your payroll contributions to a 401k, but you may still contribute to an IRA. The deadline for 401(k) contributions is often the end of the calendar year, and the maximum contribution amount is $20,500 or $27,000 for those 50 or older.
If you did not max out your 401(k) this year, you should consider a strategy for 2024. According to Maribel Francisco, an immigrant money coach and author of Our Wealth Matters, it increases the amount of money you receive from your salary and reduces your taxes over time.
Francisco explains, “You can kill two birds with one stone.”
You have until April 18 to donate to an IRA or Roth IRA; however, you must specify whether the contributions are for 2024 or 2024. Even if you contribute in 2024, you must adhere to the 2024 restrictions of $6,000 or $7,000 if you are 50 or older. The contribution limitations for 2024 are increased, and you can contribute until Tax Day in 2024.
Financial expert Rita-Soledad Fernández Paulino advises investing it in a Roth IRA if you anticipate receiving a tax return the next year. It will not reduce your taxable income in 2024 but will do so in 2024.
The founder of Wealth Para Todos, Fernández Paulino, advises you to figure out how to maximize your Roth IRA annually. If you could max out your Roth IRA in your twenties, you might have almost $1 million in tax-free funds by age 65 (assuming a 7% annual rate of return) without investing another cent in your thirties or beyond.
Don’t forget about HSAs, which give triple tax savings and carry over to the next year. Kenneth Chavis, a certified financial planner, says his worst financial error was not contributing and investing in an HSA sooner. Due to the necessity for a high-deductible health plan (HDHP), it may not make sense for everyone.