Tax filing is a confusing process for many. That’s why there are so many agencies that earn a living by helping others file their taxes.
However, other people refuse to employ the services of such people for various reasons. Without the necessary knowledge, filing your taxes can be done right, but they are not going to be done better.
In this article, we will cover 10 tax tips to help you file better.
So keep reading to learn more.
1. Who Will File Your Taxes?
If you have had major occurrences in your life this year, perhaps you got divorced or married or you even started a business, your taxes will be much more complicated.
Because of this, you might need to employ the services of a CPA to help prepare and file your taxes. Just make sure not to wait until the calendar flips to the month of April, because it will certainly cost you.
Most tax specialists will charge a premium for helping with your taxes as the April 15 deadline closes in. And perhaps, you might even find yourself lost looking for someone who isn’t busy to help you.
2. IRA to Roth
Roth has two significant benefits over traditional IRAs. First, withdrawal is not considered income for federal tax. Second, you are not required to take RMDs from Roth each year, starting at 70 years and six months.
You can leave the funds in the accounts to earn interest as long as you desire, with no requirement to take it when not needed. With a regular IRA, you have to start taking RMD and make payments on the income.
Just know this, when you convert traditional IRAs to Roth, it will be considered a taxable income for that year, which will increase your tax bill.
3. No Tax on RMD Through Donation
Any senior with an IRA or 401(k) have to take out a minimum amount each year once they reach the age of 70 1/2. Those who don’t need this money should consider sending it to charity as a charitable donation.
So you receive a check and then instantly make it out to the charity. This will prevent the money from being taxable and can help reduce the quantity of Social Security retirement benefits that are usually taxable.
4. Capital Loss Harvest
If you have owned stocks that lost money, you choose to sell and deduce them to a sum of $3,000 on federal tax. Make sure to avoid violating the wash-sale, which would prevent deduction. The rule says that you cannot purchase a similar or same stock within 30 days after or before the sale.
If you own stocks that have lost money, you can sell them and deduct up to $3,000 on your federal taxes. Just be careful not to violate the wash-sale rule, which would disallow the deduction. This rule states you cannot purchase the same or a substantially similar stock within 30 days before or after the sale.
Some people will instantly think that it’s ok if you use different accounts. As in selling the stock with a taxable account and then purchase the stock with an IRA. This is not allowed.
5. Qualified Opportunity Funds
A taxpayer can choose to defer their capital gains by reinvesting into Qualified Opportunity Funds. These are created by the Tax Cuts and Jobs Act and intend to spur economic growth/job creating in distressed areas.
If the money is held in such fund for seven years, 15 percent of the capital gains tax is deducted.
Nonetheless, like other forms of the tax reform law, the tax-savings benefit and funds are scheduled to finite in 2026. This means, you’ve sort of already missed the opportune window, however, there are other benefits to this investment.
6. Bunch Contributions
A married couple who file jointly have a standard deduction that is double that of a single taxpayer. The Tax Cuts and Jobs Act has doubled the standard deduction, and eliminated various deductions, capping the local and state tax deductions at $10,000, and mortgage interest deductions on loans up to $750,000.
These edits can make it hard to separate deductions unless someone has made significant donations. It’s suggested that you bunch 2 years of contribution in a single year, which will allow you to claim itemized deductions every other year.
For those who have the means, claiming a donor-advised fund is an ideal opportunity. As you will get the deduction each year you move the money into the fund.
7. Spending Account Balance
Those who have flexible spending accounts should use their balances as soon as possible. The accounts have “lose it or use it” provision, in which the money goes back to the employer if not used.
Some companies do have a grace period for payments made within the year, others will cancel the reimbursements towards the close of the year. This is the guide to – “what is form 1099-misc?”.
8. Mutual Fund Purchases
You should be careful if you’re buying mutual funds this time of the year especially if held in a taxable account. You will get send a tax bill for year-end dividends even if you just bought them.
To avoid paying more taxes, consult with brokers before making the purchase to ensure what distributions and when are they made.
9. Tax Tips for Last Spring
If you owed taxes when you filed your state tax return last year, you should make sure to include that quantity in the state tax itemized deduction on this year’s return, along with the state income taxes that are withheld from checks or via quarterly estimated payments.
10. Mortgage Points
When buying a house, you will often get to deduct points that are paid to obtain the mortgage all at once. When refinancing a mortgage, you have to deduct them over the life of the loan. This means you can deduce 1/30th of them a year if the mortgage is for 30 years.
It doesn’t seem like a lot, especially a $33 a year for $1000 of points paid. But why disregard it? Also, in the year the loan is paid off, you get to deduce all the points that haven’t been deducted yet unless you refinance with the same entity.
These are some great tax tips, huh?
Tax Done Right
Now that you have discovered these 10 tax tips to help file for next year, you are well on your way to make sure that you get everything right.
Make sure to keep up with the dates and not file too late, as that can create many unnecessary complications. If you’re interested in similar articles, go through the categorical pages on our website.