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Navigating Tax Season: Tips and Insights

As a financial advisor, I've seen firsthand the common mistakes people make when preparing their taxes. One of the most prevalent errors is rushing to file returns before having all the necessary tax forms on hand. This includes essential documents like 1099’s, K1's, or capital gains from investments. My advice? Take a moment to review your previous year's return. It's a valuable resource for identifying potential missed deductions or credits. If you are like me and want to ensure you have all your tax documents in order, I recommend visiting the IRS website and downloading your transcripts. Yes, you can see exactly what is being reported to the IRS with your social security number. You do have to register once on the IRS website, but it is well worth it. This step can help you avoid delays and ensure accuracy when working with your accountant for years to come.  


It's important to mark your calendar with important dates and payments. April 15th is the deadline for filing your 2023 tax return or requesting an extension. Some people fear extensions. It is not a problem nor a penalty to file for an extension. I do it every year. But remember, even with an extension, any potential taxes owed are still due by April 15th. If you file an extension and later, when you file, you discover you owe, you can get hit with a "failure to pay" penalty that bills you .5% of the unpaid taxes for each month the tax wasn't paid. So, sending in a payment with your extension may be better. If you overpay, you can receive a refund after you file or apply the overpayment to the current tax year. Make sure you discuss this with your accountant.  


Now, let's talk about some key figures for the 2023 tax year. The standard deduction, the amount a taxpayer can deduct from income if they do not itemize on a Schedule A, is $13,850 for single filers and $27,700 for married couples filing jointly. Remember, if you or your spouse are over 65 or legally blind, you are eligible for an additional $1,850 deduction per person. With approximately 90% of filers opting for the standard deduction, it's essential to understand its implications for your tax situation.    

You may wonder about the personal exemption, a deduction previously available for each person included on a tax return. However, Congress repealed the personal exemption in 2017 ($4,050 per person), coinciding with the nearly doubled standard deduction. So, having a family of six provides no additional tax breaks than a family of two unless you are eligible for child tax credits (up to $2,000 for dependents under age 17), which can also be phased out based on your income.  


Are you looking for ways to lower your taxes before April 15th? Consider contributing to an IRA and/or Spousal IRA. Many filers overlook a spousal IRA, which allows them to maximize deductions and savings opportunities even if one spouse does not work. For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is between $116,000 and $136,000 for 2023. If your combined income is above that, perhaps a "Backdoor Roth" is in your future.  


In conclusion, navigating tax season requires attention to detail and strategic planning. By staying informed and leveraging available resources, you can maximize your tax situation and minimize any surprises come April 15th. As always, if we can be of service, feel free to reach out.   


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