Now that the confetti has settled and New Year's resolutions are either taking shape or already falling flat, it's time for another less enjoyable annual tradition: tax season.
While the IRS won't start accepting returns until January 27th, you can take some steps now to prepare for a smooth tax filing process.
Here are eight tips to get you started, beginning with information on when you can file your federal income tax return.
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When can I start filing taxes?
That’s the million-dollar question this time of year.
The IRS just announced it will begin accepting tax returns on January 27th. In the meantime, some tax preparation services will work with you to prepare your return and hold it until the IRS officially accepts returns.
Also, as of Friday, January 10, the IRS Free File program is open. This service lets qualified taxpayers (those with adjusted gross income of $84,000 or less) prepare and file federal income tax returns online using guided tax preparation software. The IRS says it’s safe, easy, and, of course, free of charge.
Note: Free File differs from the newer IRS program, Direct File. Piloted last tax season, Direct File is back, allowing many taxpayers to file for free directly with the IRS.
1. Organize tax documents
Preparation is the key to a stress-free tax season. Start by gathering all your important documents. It can help to create a dedicated folder or digital space for the following documents.
- W-2 forms from employers
- 1099 forms for freelance or contract work
- Investment income statements
- Receipts for deductible expenses
Remember, some IRS reporting forms, like 1099-Ks, may not be available until late January or early February, so check your mailbox.
Also, the IRS urges taxpayers to use identity protection PINs to help guard against identity theft in tax filings.
"An identity protection PIN (IP PIN) is a six-digit number that prevents someone else from filing a tax return using your Social Security number (SSN) or individual taxpayer identification number (ITIN). The IP PIN is known only to you and the IRS."
2. Review last year's return
Take a moment to look over your 2024 tax return.
Those numbers can be a helpful guide for what to expect this year and remind you of any deductions or credits you might qualify for again.
3. Consider life changes
As Kiplinger reported about summer activities that can impact your taxes, life transitions can affect your tax situation, sometimes in ways you might not immediately recognize.
So, take some time to document and understand how these changes might affect your tax filing.
Marriage and divorce:
If you married in 2024, your filing status changes to "married filing jointly" or "married filing separately." Also, newlyweds might qualify for different tax credits and deductions.
- Recent divorce requires careful documentation of asset division and potential alimony considerations in addition to potential tax filing changes.
- Name changes with the Social Security Administration must be completed before filing.
Family additions:
New children bring potential tax credits (Child Tax Credit, dependent exemptions) and adoption expenses might qualify for the adoption tax credit.
- Childcare costs could make you eligible for a child and dependent care credit
- College students in the family might impact dependency status and education credits
Career and income shifts:
- Job changes or multiple jobs in one year affect withholding calculations
- Starting a side business requires tracking business income and expenses
Significant income increases or decreases can shift your federal income tax bracket and keep in mind that unemployment benefits are typically taxable and must be reported.
Property and investment changes:
- Home purchases can provide mortgage interest and property tax deductions
- Selling a home might trigger capital gains considerations
Investment property acquisitions or sales have complex tax implications and it's important to document significant investment gains or losses carefully.
Health and personal circumstances:
- Major medical expenses might qualify for itemized deductions
- Disability status changes can affect tax filing
- Relocation for work might allow for moving expense considerations
- Significant charitable contributions can provide tax benefits
4. Maximize tax deductions
There's still time to make last-minute contributions to tax-advantaged accounts:
For example, you can contribute to your traditional IRA by April 15, 2025, and potentially lower your taxable income for 2024.
- If you're self-employed, consider setting up and funding a SEP IRA. The deadline is generally Tax Day, April 15, including any extensions.
- Also, you can generally contribute to your Health Savings Account (HSA) until April 15 of the following year.
5. Know key IRS tax changes
Key amounts for various tax deductions and credits change from year to year. For 2024 taxes (filed in 2025), be aware of inflation adjustments to numerous provisions, including (but not limited to) federal tax brackets and the standard deduction.
For example, the standard deduction for single filers has increased to $15,000, while married couples filing jointly can claim $30,000.
Note: Most people claim the standard deduction, but whether you do or opt instead to itemize is generally based on your financial situation.
The extra standard deduction for those 65 and older has also increased since last year.
6. Plan for a tax refund or to pay the IRS
If you think you’ll receive a refund this year, consider how you'll use it.
Or, if you think you might owe the IRS taxes, start setting aside funds now to avoid a financial crunch in April.
7. Don't necessarily rush to file
While it's good to be prepared, keep in mind that the IRS won't begin processing returns until January 27.
Use this time to ensure all your information is accurate and complete. That may mean waiting to receive all the tax documents needed to file your return.
8. Find a tax professional if needed
If you're unsure how to proceed, consider consulting with a tax professional. A qualified, trusted professional can provide personalized advice and help you navigate potentially confusing tax rules.
And when it comes to preparing your taxes, the choice between DIY software and professional help largely depends on your financial complexity and personal preference. Generally speaking, simple tax situations can sometimes work with software solutions, while intricate financial situations or tax strategies might benefit more from expert assistance. But the choice is yours.
Note: Don't forget about your state tax return. States offer various credits, deductions, and exemptions that can impact your tax bottom line.
By taking these steps now, you should be better prepared when the IRS officially opens the 2025 tax season. That preparation can go a long way toward making tax time a little less taxing.
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