Tax tips they should’ve taught us in high school. Welcome back to tax season, it’s the adult equivalent of finals week, but unlike finals you get hit with late fees or maybe even deal with the looming threat of an audit, yuck! Which is why we made this list of 10 essential tax tips to give you some peace of mind during tax season.
Don’t treat your tax prep like a sprint, when instead you can take your time and enjoy it like a leisurely, and potentially lucrative, stroll through the park.
Using these tax tips give you a head start, which means you’ve got more time to figure out how complex your situation is and discover all of those elusive deductions. Turn this stressful obligation into an easier one and use these tax tips to make prepping for it a lot more manageable. Make tax planning your new year-round hobby, especially if you take advantage of these tax tips, the future you will be so happy that you did.
So without further adieu, here’s 10 tax tips (and maybe a couple of secret bonus tax tips) you absolutely need to know to win big this tax season:
1. Gathering The Right Documents
First things first, you need to know what forms you’ll need. If you’re a regular salaried employee, the W-2 form is your go-to document. It outlines your yearly income and what’s been withheld for taxes.
Now, if you’re a freelancer or gig worker, you’ll be staring down the barrel of the1099 form. This is basically a summary of the income you’ve made from each client. You might have multiple 1099s, each for a different source of income.
- TIP: Keep all your forms and receipts in one safe place—whether it’s an app, a folder on your computer, or an actual binder. You don’t want to have to dig for any crucial documents at the last minute.
2. The Difference Between ‘Tax Year’ and ‘Tax Season’
There’s an important distinction between the terms ‘Tax Season’ and ‘Tax Year’. Tax year refers to the year in which you earn your income, running from January to December.
‘Tax Season’, however, is the time period when you’re reporting that income, usually from late January to mid-April of the following year. For example, in the 2024 tax season, you’re dealing with income earned during the 2023 calendar year.
- TIP: Use separate folders or spreadsheets to keep track of income and expenses for each tax year. And If self-employed, make estimated tax payments quarterly to help you avoid any unnecessary penalties. It’ll make your life easier when tax season rolls around.
3. Understanding the Progressive Tax System
In the U.S., we have a progressive tax system. It’s like a staircase that’s built with different size steps. As you climb higher (earn more income), you ascend to a higher step (higher tax bracket). Each step has a different tax rate. So, while everyone takes the same first step, those who earn more take additional steps and end up paying higher taxes.
These rates are not set in stone and they can change based on tax deductions you qualify for, inflation, or legislative adjustments (for example, like which political party is in charge at the time).
- TIP: Make sure to stay up to date on which tax bracket you fall under each year. That way, you can make more informed decisions about things like investments and deductions.
4. Tax Deductions and Credits: Your Best Friends
If you picture taxation like a maze, then tax deduction and credits are like secret shortcuts. They minimize the amount of your income that’s subjected to being taxed, either by slicing off a portion of your income or directly trimming your tax bill. Understanding how they work is key to optimizing your tax strategy.
Are expenses or contributions that reduce your taxable income. They can include the interest on your mortgage, any charitable donations you’ve made, business expenses, etc. Taking advantage of all of the Tax deductions you can because they may potentially move you to a lower tax bracket.
Tax Credits
On the other hand, directly reduce your tax bill which ends up putting more money back into your pocket. It’s like getting a coupon from the government to pay less come tax time for doing certain activities.
- TIP: Keep organized records of any potential deductions or credits that you might qualify for. Such as; any work-related expenses, educational costs, or any donations you made to charities.
And if you need any help figuring what you qualify for, contact us and we’ll get back to you ASAP. The more organized you are, the easier it’ll be to claim these benefits.
5. DIY or Hire a Pro?
Tax software has made it easier for many people to file their own taxes, but if your financial situation is complicated, then you might want to consider hiring a dedicated tax professional.
They will help you figure out and take advantage of all the deductions and credits you’re entitled to, making sure you get the most out of your tax return.
Here at Gemini Accounting, our team of professionals are your go-to support for navigating the often stressful tax season, making the whole process easier to manage and lot more enjoyable.
- TIP: If you decide need some help, contact us here, and make sure you book with us soon as possible because we’re usually fully booked all the way up to the deadline.
And you don’t want just another “certified” tax person, who just took a 6 week course, when you can have a top-notch full fledged accountant at your service that will shrink your taxes as much as possible, and make sure you don’t leave a dollar on the table.
6. The Child Tax Credit: Your Little Bundles of Tax Relief
Parents, listen up! The Child Tax Credit (CTC) is the superhero of your tax world. Up to $2,000 for each young one under 17 can be credited. So, keep those kiddos in line and your documents in order.
Income limits apply, but don’t sweat it too much. With ceilings of $400,000 for joint filings and $200,000 for the rest of us, there’s some room to breathe.
- TIP: Make sure you update your filing status if you’ve welcomed a new family member. This can really help you tip the scales in your favor!
7. Child and Dependent Care Credit: Because Babysitters Don’t Pay Themselves
Juggling family life and work? No need to worry because there’s a tax credit for that too. The Child and Dependent Care Credit is your financial fairy godmother, offsetting costs for daycare, babysitters, or even elder care.
Your next question might be, how do I qualify it? Well, the credit is calculated as a percentage of your eligible care expenses, typically ranging from 20-35%, depending on your AGI.
- TIP: Some employers offer Dependent Care Flexible Spending Accounts (FSA). Find out if yours does, it’s definitely worth a look!
8. Education Credits: Smart Moves for Your Brain and Wallet
As the old saying goes, “Knowledge is power, but using these tax credits will make you feel even smarter.” If you or your young scholars are college-bound, check out the American Opportunity Tax Credit (AOTC) —up to $2,500 per student!
Don’t miss out on the Lifetime Learning Credit (LLC), not to be confused with a “Limited Liability Company”, has fewer limitations and can even cover professional development classes.
- TIP: Save every education-related receipt. That Econ 101 textbook might be a nuisance now but could lead to some future tax savings.
9. 1099-K: It’s Not Just For The Big Players Anymore
Have you sent or received money through Venmo, Cashapp, or PayPal? Because if you did, the 1099-K might be coming for you this year use these next 3 tax tips to avoid having to do more boring paperwork.
This isn’t just for the high rollers anymore. A single transaction over $600 might be all it takes for them to send you a 1099-K
If you want to avoid this, you need to do 2 things:
- First, keep the total amount of gross payments you receive below $20,000 a year on these payment platforms.
- Second, keep the total amount of transactions you conduct below 200 transactions during the same calendar year. That’s it.
- TIP: Keep a record of your money transfers. And if you get a 1099-K by accident make sure to call up the payment network. better safe than audited.
10. Secure Your Future And Enjoy The Tax Benefits NOW!
This tip is like 2 tax tips in one. Let’s quickly brush up on 401(k)s and Traditional IRAs (Individual Retirement Account).
401(k)
Is a retirement savings plan that’s provided by your employer. You contribute a portion of your gross pay (before taxes) into it, and it grows while tax-deferred, meaning you don’t pay any taxes on any of the gains or earnings on your plan until your retirement. And if you’re lucky, your employer will also match a portion of your contributions.
Traditional IRA
Is a retirement savings account, and just like with 401(k)s, you contribute pre-tax dollars and your investments can accumulate any gains and earnings without being taxed.
If this sounds like gibberish to you, contact one of tax pros here at Tax Avenue, and they will help lead you through the maze.
- TIP: They are both also tax-deductible, so you basically remove the amount you contributed into the IRA from your gross pay and you only pay the taxes on what’s left.
The contribution limits are steadily on the rise, and so are the income limits for Traditional IRAs. 401(k)s contributions have gone up to $22,500 a year, that’s no chump change.
*Now for having read this far, we want to reward you with a bonus tax tip, and this one’s quite the gem*
11. BONUS TIP: Health Savings Account (HSA): The Hidden Money-saver
Health Savings Accounts, or HSAs are another great way to reduce your taxable income and save more on your taxes this year.
- TIP: Does your health insurance plan have a high-deductible? Then you can contribute to an HSA and watch as it gets deducted from your taxes. Use it for all of your qualifying medical expenses because it’s entirely tax-free.
That’s all folks! Tax Season can be really stressful and confusing, so make sure you use all 11 of these tax tips and tricks, and see how rewarding this Tax season can be. You don’t want to be the person scrambling when Uncle Sam comes knocking.
Got any questions? Shoot us a message here, and we will get back to you ASAP.