When preparing for tax filing season, several essential items should be considered to make filing your taxes quick and simple.
Several of these items are highlighted below:
Gather your tax forms and documents now.
Getting a hold of your tax documents as soon as possible makes the tax filing process quicker and simpler. Your most commonly used tax forms are usually available from employers, schools, and financial institutions in January or February. Many individuals find it helpful to use their prior year’s tax return as a guide to determine which tax documents to gather ahead of time. However, if you have experienced any changes in your tax situation since last year, you may have additional documents that must be included in your 2023 tax return. Additionally, if you have yet to receive an anticipated tax document by the end of February, call the provider to request a replacement.
Check your payroll withholding and estimated tax payments.
Throughout the year and during significant life events (such as marriage, retirement, or a change in income), it is crucial to verify the amount being withheld for federal and state taxes to ensure that your tax liability will be covered. Individuals who are not withholding enough from their wages or retirement income can be stuck with a large, and sometimes unexpected, tax bill. Additionally, underpayment penalties and interest may be assessed by the IRS. Individuals who are withholding too much tax can put funds on hold until the tax refund is received, which may result in potentially missed investment opportunities. Submit a new W-4 form to your employer or financial institution to modify your withholding elections.
The same goes for paying quarterly estimated taxes. Consult your tax advisor to ensure that enough tax is being paid quarterly to avoid a hefty bill, underpayment penalties, and interest at tax time.
File your return, or an extension, by the April 15th tax deadline.
Filing your tax return and paying the balance due on time is very important to avoid late filing and late payment penalties (and a pile of tax notices). If you cannot file on time, you may request a 6-month extension of time to file, extending the filing due date for Form 1040 until October 15.
It is crucially important to pay the balance due on time. Providing that you decide to request an extension for your tax return, please note that an extension of time to file is not an extension of time to pay. Make your best estimate of the tax due and remit payment with your extension request.
Fortunately, the IRS offers several payment options, including paying online through EFPTS, credit card, or bank account debit. Same-day wire, electronic funds withdrawal (during e-filing), checks, or money orders are also available options. If you cannot meet your tax obligation, a payment plan can be requested by contacting the IRS. Please visit the IRS’ payment website for more information: www.irs.gov/payments.
Required Minimum Distributions.
Another piece of information to consider when filing your taxes is that upon reaching the required beginning age, owners of IRA accounts and retirement plans are typically required to take a required minimum distribution (RMD) each year. Despite this requirement, rare exceptions can be made. For example, during the tax year 2020, no RMDs were required due to the ongoing coronavirus pandemic, as provided for in the CARES Act. However, without further legislation, RMDs will be required for the tax year 2024.
It is important to note that under the SECURE Act passed in late December 2019, the required beginning age changed from age 70½ to age 72 for those who had not reached the required starting age before January 1, 2020. The RMD beginning age was changed once again, from age 72 to age 73, under SECURE 2.0 legislation that passed in late December 2022.
If you are charitably inclined and have reached age 70 ½, you may make a Charitable IRA Transfer directly to a charity out of your IRA account without creating additional taxable income. The maximum amount that can be donated to charity from your IRA is set relatively high at $100,000 per year, per taxpayer. Upon reaching age 72, charitable IRA transfers can also help satisfy your RMD requirements tax-free. As always, please consult your team of advisors for more information on planning for RMDs.
Working with a solid team of professionals to develop, implement and monitor your investments is essential and frequently overlooked. At Central Investment Advisors, we are always ready to help answer any questions you have regarding your investment needs. That’s why we offer no-obligation initial consultations – allowing you to get to know the person advising you, and for us to get to know you and understand your goals. For more information, contact a Central Investment Advisor or visit our website, www.centralinvestment.net.
Important Disclosures: This information is not intended to be a substitute for specific individualized tax or legal advice. Neither LPL Financial, nor its registered representatives, offer tax or legal advice. Always consult a qualified tax advisor for information as to how taxes may affect your particular situation.
Category: Markets & Economy
