It’s that time of year, time for tax prep! The IRS started accepting 2023 tax returns on January 29, 2024.
I’m not an accountant, only a layperson who likes to submit my information in a timely manner! Situations are different – working or not? Self employed or not? In the spirit of keeping things as simple as possible, here are some thoughts to get you started and keep you going all year.
How to Organize Tax Documents
For me, it’s easiest to organize all year round. Track your mileage, keep track of charitable donations, keep receipts, and keep records about any money coming in. Whether you organize all year or not, have you considered organizing in such a way that’s easy for you?
My tip is to refer to your previous year’s return as a guide as you begin prep. It’s helpful to have a reminder about certain documents as you begin to sort through what’s needed.
Are you a paper person or do you keep and store electronically? Let’s break this down into categories for you to manage more easily.
Money In / Money Out
This category is for all income and expense-related documents. W-2s, 1099’s, deposits made, canceled checks, invoices, paid bills, earned interest, retirement withdrawals, canceled debt, unemployment received, gains/losses from crypto, etc.
The IRS provides guidance for small businesses and self-employed people HERE. For recordkeeping, the IRS provides guidance for everyone HERE. The IRS document about managing tax records after you file can be found HERE.
Maintain a System
The trick to maintaining a system is to create one that you’ll use consistently. During my school years, I knew someone who ultimately became an accountant. When I was first starting out after school, we discussed what I needed. Truth be told, I still use this base system (with a few tweaks)! Here are a few ideas to get you started.
- Create a checklist of documents you need to complete a tax return
- Designate a storage container, create separate folders to name and keep your tax documents throughout the year
- Decide how you wish to store long-term tax documents for reference and/or audit
Tax Deductions
FinanceBuzz.com outlines deductions you can take without itemizing.
1. Alimony payments
Alimony is a touchy subject, but there is a tax plan for it. If the divorce or separation agreement was finalized before December 31, 2018, they can be deducted.
It doesn’t apply to agreements made after 2018 or if an agreement from 2018 or earlier was subsequently amended to make the payment non-deductible or taxable to the recipient.
Look for it on Schedule 1, Line 19, and attach it to Form 1040.
2. Contributions to a retirement account if you’re self-employed
This one is a bit of work, but it pays off. If you’re self-employed, you can deduct your contributions to a SEP-IRA or a SIMPLE IRA. Check for it on Schedule 1, Line 16.
Opting for a SEP-IRA, particularly if you want higher contribution limits and increased tax advantages, might be preferable over a Traditional IRA.
3. Early withdrawal penalty from savings
If you took money out early from a Certificate of Deposit (CD) or a similar savings account, you can actually deduct the penalty you’ve incurred.
Complete Form 1040, attach Schedule 1, and add the amount to Line 18 under Adjustments to Income.
4. Expenses for educators
Teachers can catch a break with this deduction.
Educators, including counselors and principals, can deduct up to $300 in unreimbursed expenses on their tax filing. It’s twice that if they’re married to another educator.
You must have worked at least 900 hours at a qualifying elementary or secondary school. Put it on Line 11 on your Schedule 1 Form 1040.
5. Health Savings Account contributions
Contributing to a Health Savings Account (HSA) is a savvy move if you’re enrolled in a high-deductible health plan.
Your after-tax contributions are deductible, which helps reduce your tax bill, and withdrawals for qualified medical expenses are tax-free. Report your contributions on Schedule 1, Line 13, and include Form 8889 with your return.
6. IRA contributions
IRA deductions will depend on your income and whether or not you’re part of a retirement plan at your job. So, there are some caveats.
The IRS’s “phase out” for the deduction has different tiers. If you’re single and covered, it’s between $77,000 and $87,000. If you’re married and covered, it’s between $123,000 and $143,000.
If you’re not covered but married to someone who is, it’s between $230,000 and $240,000. Look for this one on Schedule 1, Line 20.
7. Moving expenses for active-duty service members
Uncle Sam has a deduction just for the troops.
Active-duty military members can claim a deduction for qualified moving expenses if not reimbursed by the government.
Eligible moves include the initial relocation to the first post, transfers between permanent posts, or the final move to the home. Covered expenses include household items, lodging, personal effects, storage, and travel — excluding meals.
8. Self-employed health coverage
If you’re self-employed, you can potentially deduct premiums paid for health, dental, and qualifying long-term care insurance coverage for yourself, your spouse, and dependents.
This adjustment to income is claimed on Schedule 1, Line 17, and attached to your Form 1040. The deduction extends to cover your child under 27 years of age, regardless of dependency status.
9. Some business expenses
Broadly speaking, business deductions require you to itemize, but there are a few exceptions.
Performing artists and certain government officials (“fee-basis government officials”) can include business expenses directly on their income tax returns on Line 12 of their Schedule 1.
To claim them, file Form 2106 and attach it to your Form 1040. This one might be a job for a tax professional.
10. Student loan interest
You can get a tax break if you’ve paid up to $2,500 in student loan interest, but be mindful of income restrictions.
For single filers, the deduction is a no-go if you have an income over $85,000; for married couples filing jointly, it’s $170,000.
This tax break can be claimed on Schedule 1, Line 21. And it doesn’t matter who the loan was for.
11. Your self-employment tax
Self-employment taxes might come as a bit of a surprise, but everyone has to pay Social Security and Medicare taxes — otherwise known as FICA. It comes to 15.3% of net self-employment income (12.4% for Social Security and 2.9% for Medicare).
Fortunately, you can deduct half of this tax on Schedule 1, Line 15, and attach Schedule SE to your return.
Filing Deadlines
For Individuals: April 15, 2024, is the deadline to file individual tax returns (Form 1040 or Form 1040-SR) for the year 2023 or to request an automatic extension (Form 4868). An extension provides an additional six months to file your return. Payment of the tax is still due by April 15th.
For Businesses: March 15, 2024, is the deadline for partnership (Form 1065) and S Corporation (Form 1120S) returns. April 15, 2024, is the deadline for C Corporation (Form 1120) returns or to request an automatic six-month extension. September 15, 2024, is the final deadline to file for those who requested an extension on their partnership and S Corporation returns. October 15, 2024, is the final deadline to file for those who requested an extension on their C Corporation returns.
Life’s Administrative Side
The administrative side of life is real. Filing your taxes is one example that we feel at this time of year. It is a great example to stress the importance of organizing your life in such a way that makes it easier for you every day and makes it possible for someone to step in for you when needed.
Consider this your push to evaluate all areas in your life to ask, are you ready? These are the details I pay attention to.
The 2024 edition of my book The Living Planner (What to Prepare Now While You Are Living) is being printed as I type this. If you’d like to secure a copy for yourself or for someone you know, here is a direct link to my shopping cart. The Living Planner What to Prepare Now While You Are Living © https://www.e-junkie.com/i/u8ac
If you have any questions or wish to discuss other ways to work with me, send me an Email or check out the website @ The Living Planner. Richard Cushing said, “Plan ahead: It wasn’t raining when Noah built the ark.” Let’s think and plan ahead together ❣️Lynn #PlanfortheUnplanned #Can’tPredictCanPrepare