Preparing For The 2022 Tax Season
2021 is now behind us and while we can take in the freshness of the new year, this doesn’t mean we are devoid of responsibility. Q1 of every new year requires that we all plan for the same thing, tax season! Paying taxes on time and correctly is one of the many responsibilities we must uphold as American citizens. While everyone is welcome to take care of their taxes on their own, this is usually not recommended.
The more you make and the more assets and beneficiaries that are associated with you, the harder it is to file on your own. You can coordinate with your certified financial advisor in Connecticut and your local accountant, to properly account for everything that is subject to taxation. We’re going to be discussing best practices for tax preparation/planning and how your assets and income come into the fold.
Understanding How Taxes Work
You’ll want to make sure that everything is in order before diving into tax planning for the new year. In addition to working with an accountant, your certified financial advisor in Connecticut can help you put together a financial plan that is both tax efficient and compliant. These professionals can help you keep your ducks in a row, taking the guesswork out of financial planning and easing the process to the point where it begins to feel therapeutic, since you have a team doing all of the heavy lifting. This kind of planning is paramount when it involves your family, personal assets, and other miscellaneous responsibilities. Securing your long-term wealth can’t be achieved without a sufficient plan, and following these steps will do just that.
Before we dive into the best practices for effective tax planning, it’s important to understand the basics of taxes. Filing is not an enjoyable task for most people, but proper planning alleviates much of this stress. Tax season usually runs from January through mid April. Typically speaking, this is a fair window of time to work with, but if need be, you can request extensions to file. To learn more about this, you can read more from the IRS resources.
How you pay taxes also depends on the kind of employment you’re retaining. You can be 1099 or a full-time W2 employee. 1099 employees are self-employed independent contractors, while W2 employees receive regular wages and benefits. The self-employment tax rate for contractors is about 15.3%, with 12.4% allocated for social security and 2.9% for medicare. Conversely, W2 employees pay 7.65%, and their employers pay 7.65% for your medicare and social security taxes.
Now that we’ve covered the basics of taxes, it’s time to discuss some tips for coming out on top during tax season.
How To Prepare
The following are effective methods for handling your taxes for the upcoming season:
Creating Folders For Your Forms: Half of the process of filing taxes is ensuring that you have all of the necessary forms. Your tax forms will begin to show up in late January or early February. To keep everything organized, you should consider getting a folder to keep all of these documents in one place. On the other hand, if you get them electronically, then save them as soon as they come in.
Look At Last Year’s Tax Returns: You won’t be starting from scratch every tax year. Looking at tax returns from the previous year is a good indicator for understanding what you need to do this year. This can surely include looking at interest, dividends, and charitable deductions (if applicable).
Looking At Withholdings: If your tax bill or refund was larger than normal and you’re looking to balance it out, you’ll want to consider adjusting your withholdings. This means increasing or lowering how many taxes are taken out of your paycheck.
Checking Your Receipts: For those who itemize their deductions, putting together your receipts can be the most excruciating part of doing taxes, regardless of your organizational skills. Start organizing your deductions by category such as medical, charity, or taxes. Electronic apps and spreadsheets can be used to track this information. Once these have been established, you can email this info to a tax professional or use a tax filing software.
Sorting Out Taxes With A Certified Financial Advisor In Connecticut
If you’re interested in learning more about the importance of taxes and its relation to financial planning, look no further than our team of professionals at Armah Financial Services. Contact us today to set up an appointment!