It’s that time of year again. Seriously, I know you’re thinking, “Come on! I have until April 15th; slow your roll a little!”
Taxes are like going to the dentist. A painful bummer to be avoided until the last minute.
Well…let me tell you something. I don’t feel that way. At least about the procrastination part.
Taxes suck, don’t get me wrong. But have you ever heard that expression about eating the frog?
In short, it means do the unpleasant task first, and get it behind you.
Plus, tax time itself doesn’t have to suck, if you prepare for it well.
You know it’s coming, don’t act like you don’t!
There are several obvious but important things you can do to prepare for tax season 2023:
Gather all necessary documents from outside sources, such as W-2 forms and 1099 forms, for any income you received in 2022.
Organize all your household expenses and receipts, such as those for charitable donations, medical expenses, and household expenses if you’re thinking of writing off a home office.
Know any important changes in tax laws. There are changes every year, that’s the one thing you can count on.
2022 Tax Law Updates – The Easy Version
Of course, the standard deduction has been adjusted for inflation, up $800 for married filing joint to $25,900 in 2022. Head of Household (HOH) is $19,400, and Single is $12,950.
The allowable 401K contribution has increased, but not the IRA. Again. That’s still at $6,000, $7,000 if you’re over 50.
Nice work, Congress. (Not).
The Credit for Nonbusiness Energy Property, which was extended past 2017 through last year is not available beginning with tax year 2022.
Same thing with the Mortgage Insurance Premiums Deduction, and for the same reason. They were extended due to the COVID pandemic, but have both been allowed to expire.
Keep this in mind, because it’s important: the standard mileage rate for business is split in two for last year. 58.5 cents to the end of June, 62.5 cents for the second half of the year. Make sure your log is updated with this information.
That little bit of charitable contribution write-off we got for a couple of years on the first page of the 1040? Gone for 2022. Not surprised about this, frankly.
It’s okay to hate Congress a little. We have an inalienable right to feel things, certainly, and make no mistake: Congress is the villain. The IRS is just their (soon-to-be-underfunded) arm.
Some Good News for the Fast Action Takers
IRS E-File season is already open for business returns. That happened this past Thursday, on January 12th.
If you want to get those juicy over-withholding returns done and get your refunds fast on your Forms 1040?
The word is out. E-File opens for individual returns on Monday, January 23rd.
A Preparation that Makes Tax Season Much Less Painful
I’m going to assume that if you’re here, you are likely either an entrepreneur, quite possibly a real estate investor or in a related field.
Or else, you’re thinking about doing it.
So here’s a tip to make your life a lot easier:
I’ve discussed this at length in the past, including the nice link you have right here, so I’ll keep this short:
If you pay the taxes you’re reasonably sure you’re going to owe four times during the year you’re in, and get your tax liability to within $1,000 come March or April’s tax filing for the previous, three wonderful things are going to happen for you:
- You’ll owe less than $1,000.
- You’ll have enough in your budget to make a good First Quarter Estimated Tax payment, which is also due mid-April.
- You’ll avoid what could be hundreds of excess dollars in underpayment penalty, plus interest if they bill you for it later.
THAT’S why I say tax season can be almost enjoyable. Like walking into your kitchen and seeing all of the dishes done and the counters sparkly-clean.
By the way, great segue occurring here:
The Fourth and final Estimated Tax Payment is due in two days.
Tuesday, January 17th.
Estimate what you think you’re going to owe (make sure you subtract any previous payments or W2 withholdings), and pay as much of it to within a few hundred bucks as you can.
You will thank me later!