Renner Individual News; August 18, 2023
Tax time comes every April, but there’s plenty you can do throughout the year to stay organized.
What you do after tax day can affect the tax you pay or get back next year.
Here are some handy year-round tips to assist with your tax planning.
Organize Your Records
- Create a system that keeps all of your important information together. You can use a software program for electronic recordkeeping or store paper documents in clearly labeled folders.
“If you are uncertain that a document is necessary for taxes, include it anyway,” said Paige Mason, CPA, tax manager at Renner and Company. “We as tax accountants can make the determination.”
- Add tax records to your files as you receive them. Organized records makes tax return preparation easier and may help you or your preparer discover overlooked deductions or credits.
Identify Filing Status
Your filing status is used to determine your filing requirements, standard deduction, and eligibility for certain credits and the correct amount of tax that you should pay.
If more than one filing status applies to you, one way to get help choosing the best one for your tax situation is with the IRS tool Interactive Tax Assistant, What Is My Filing Status. Information needed to use it are marital status and spouse’s year of death (if applicable); and the percentage of the costs your household members paid toward keeping up your home.
Changes in family life — marriage, divorce, birth and death — may affect your tax situation, including filing status and eligibility for certain tax credits and deductions.
“There are five different filing statuses,” Paige said. “Using the correct filing status is important for taxpayers so they can maximize the deductions and credits available to them.”
Understand Adjusted Gross Income (AGI)
AGI and tax rate are important factors in figuring your taxes. AGI is the taxpayer’s income from all sources minus any adjustments and deductions.
Generally, the higher your AGI is, the higher your tax rate will be and the more tax you will pay. Tax planning can include making changes during the year that lower your AGI.
“A few examples of income adjustments or deductions are educator expenses, deductible part of self-employment tax, and student loan interest deduction,” Paige said. “These adjustments and deductions reduce your total income.”
Work On Your Withholding
Since federal taxes operate on a pay-as-you-go basis, you need to pay most of your tax as you earn income.
You should ensure that you’re withholding enough from your pay to cover your taxes owed, especially if your personal or financial situations change during the year. To check withholding, you can use the IRS Withholding Estimator.
If you want to change your tax withholding, you need to provide your employer with an updated Form W-4.
“The W4 is a very basic form that directly affects your tax bill,” Paige said. “Taxpayers should be sure to read the form carefully to ensure the correct amount of withholding.”
The W4 can be filed more than once, and you can resubmit your W4 with different withholding if you are over/under on it.
“If you are concerned about your withholding, you should reach out to your accountant for a tax projection,” Paige said. “We can project your income, taxes and withholding for the year.”
Reap Rewards of Retirement
Saving for retirement can also lower your AGI. Contributing money to a retirement plan at work or to a traditional IRA also reduces taxable income.
There are income and contribution limits to all retirement plans.
“Contributing to a pre-tax retirement plan is beneficial, two-fold,” Paige said. “The contributions reduce your taxable income in the year of the contribution and you are also saving money for your future retirement.”
There’s more to know about this. Contact Renner and Company here to help with your tax planning.
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