Tax Time Tips

Tax Time Tips

COVID really changed the tax filing season up in 2021 - it even gave us extra time to sort it all out. This year, there will be no luxury of extra time. For those procrastinators out there, the deadline is looming - April 18. And if you expect your taxes to be more complicated than usual due to unemployment benefits, other kinds of government aid, or picking up another job, it's more critical than ever to prepare your finances and get to the filing.

Luckily, there are plenty of resources that provide valuable information that can help you figure out exactly what you owe. Here are five tips to help you as you prepare to file your taxes this year. Please bear in mind that Eaton doesn’t provide legal or tax advice. Consult your legal and/or tax advisor.

1.    Make Sure Your Financial Records are Well-Organized

Taking the time to organize your tax documents and finances early in the season can make the process of actually filing your taxes easier and more streamlined. You can use your return (of which you can get a free copy through the IRS online portal or by logging in to any online tax service you might’ve used last year) from the previous year to give you a starting point when assessing things like your previous income and deductions. If you were working with any kind of professional tax expert to help you with the process, you likely received a copy of your return when you filed. Using last year's return gives you a good model of what documents you will require to file this year. 

2.    Look for Forms and Benefits Particular to Your Situation

There are certain tax credits and deductions that may be applicable to you if you are yourself or a parent of a student. The American Opportunity Tax Credit (AOTC) allows an annual credit of $2,500 per eligible student for qualified expenses attached to pursuing an education. If your tax liability is low and you don’t have any money owed to the IRS, you can get up to 40% of the credit refunded to you in cash, potentially putting an extra $1,000 dollars in your bank account.

In order to qualify, you or your dependent must currently be pursuing a degree or be enrolled at least half-time. This credit is only applicable for four years, so if you or your dependent’s schooling takes longer than that, you will no longer be eligible.

3.    Beware of Changes to Your 2021 Return

There are a few changes to note for the 2022 tax season. The standard deduction for 2021 increased to $12,550 for single filers and $25,100 for married couples filing jointly. Income tax brackets also increased in 2021 to account for inflation. Remember, your tax rate (the percentage of your income that you pay in taxes) is based on what tax bracket (income range) you’re in. For the 2021 tax year, the tax rates are the same—but there are some slight changes to the brackets. Basically, the brackets have been adjusted by a few hundred dollars from 2020 to account for inflation. For tax years 2021 and 2022, the standard deduction also went up slightly to adjust for inflation.

4.    Find Good Tax Servicing Websites or a CPA

At the end of the day, filing taxes can be a difficult and confusing process, but there are plenty of resources out there to help you get familiar with your tax return. Online resources like TurboTax can help you make sense of your finances and come up with a plan. Building a working relationship with a Certified Public Accountant (CPA) can help you or your business with more specific needs to come up with a solid tax plan for the future, and may even guide you towards deductions. 

5.    Use Your Refund Wisely

If you receive a refund this year, put that “extra” money to work instead of spending it. Utilize any number of savings options available for a future goal or even just a rainy day. Although it might be tough, pretend like you never had it to begin with. Your future self will thank you.