It’s that time of year again when we gather our important documents and calculate how much of our earnings we owe to the government — or how much they owe us. If you haven’t already, it’s time to start thinking about how you’ll handle your federal tax return for the 2021 fiscal year. Here are a few items to consider as you prepare for Tax Day on Monday, April 18, 2022.
Gather your paperwork
First thing’s first: gather your documents and make sure everything is in order. Do you use a system to organize your information such as Expensify, Quickbooks, KeeperTax, or Wave? Do you do your own DIY spreadsheets? Regardless of how you keep yourself organized, spend a little time in advance looking everything over so that you aren’t running around last minute searching for important information. Even if you’re never audited, it’s incredibly important to make sure that your records are current.
Decide who will prepare your taxes
Do you typically prepare and file your own taxes? Do you have a CPA? If nothing major has changed in your life since last tax season, you’re probably fine to continue preparing and filing your taxes as you have done in the past. However, if you’ve gotten married or divorced or experienced a major life change such as starting a business, your tax situation will likely be more complex than you’re used to. Be sure to plan ahead, as many tax professionals will charge more the closer the filing deadline gets.
Check your IRS account online
If you haven’t already, set up your free online account with the IRS; all you need is your photo ID. Your account allows you to access recent tax records, view your balance, create or maintain a payment plan, make and view payments to the US Treasury, manage communication preferences, and access other useful information.
Max out any retirement plan contributions
The money you put into tax-deferred retirement accounts reduces your taxable income for the year, which in turn reduces your tax bill. 2021 contribution limits for 401(k) accounts are $19,500, plus $6,500 in catch-up contributions if you’re 50 or older, and $6,000 plus $1,000 in catch-up contributions for IRA accounts. Furthermore, assuming you have a high-deductible health plan and are eligible, consider contributing as much as possible to your health savings account (HSA), as they are triple tax-advantaged on the federal level.
Make sure beneficiary designations are current
While beneficiary designations won’t affect your taxes now, they will affect the taxes of your beneficiaries in the future. Tax season is a great time to review beneficiaries and make sure they are up to date to help minimize the taxes your beneficiaries and heirs will pay on your assets after you die.
Plan ahead if you’re filing later
If you’re unable to meet the filing deadline, save yourself (and your preparer) last minute stress by filing an extension ahead of time. But remember, while an extension means you have more time to file your return, your taxes are still due on or before April 18.
Don’t ignore the IRS
As much as the IRS might scare you, scarier still is the prospect of ignoring them. Whether you neglect to file your taxes, file but don’t pay, owe back taxes, etc., ignoring the IRS will not make them go away. In fact, ignoring the situation has the chance to make matters worse, as the IRS can impose penalties and seize assets if necessary.
Plan with The Humphreys Group
At The Humphreys Group, we believe that goals-based financial planning leads to healthier, happier and more satisfying results — and your tax strategy plays a role in that. As a part of our approach to financial planning, we’ll provide you with a clear understanding of the alternatives and trade-offs inherent to reaching your goals so that you can align your decisions with your priorities. Reach out to learn more.