5 Things you Should Do Now to File your 2022 Tax Return Hassle-Free and Save Money
The 2022 tax year is about to come to an end, which means you only have a few weeks to maximize your tax savings. This is also the time to organize everything that goes into your taxes so that you get all deductions and credits you deserve. If you haven’t already, take some time now to plan ahead so that filing your 2022 tax return will go smoothly and save you money. This guide applies to both business owners and individual taxpayers.
Here are four things you can do now:
Keep Track of Income and Expenses
It’s important to keep track of all your income and expenses. That way, when it comes time to file your 2022 tax return next year, you’ll be able to find everything easily. Once you find everything, you cannot file false returns or miss any deductions or write-offs, and credits.
These are some of the activities you can do now to track your expenses:
- Write down every expense that you have for the year. There are a few different types of expenses that you’ll want to think about:
- Business mileage
- Travel-related expenses while traveling on business (this should include lodging, food, and entertainment)
- Charitable contributions (these can be made by check or credit card or physical items)
- Medical expenses
- Childcare expenses
For this to be easy, create a log for each expense item. Populate it on the go or as soon as you incur the expense.
Make a tax organizer
You may think you are probably too late for this, but there is never too late for doing the right thing. Take the positive of starting a new, money-saving habit for yourself.
Thus, to save more money when you file your 2022 federal tax return, you need to know what you earned and spent in each area. Tracking income could be easy when you are an employee who only makes money via salaries.
But if you have side hustles, things could get complicated. As for businesses, it’s always complicated, hence you need to use accounting and bookkeeping to keep track of your income. This should be part of your tax organizer. Below, we look at all the items that may get into your tax organizer.
- Your income. This means all the money coming into your household (wages, tips, bonuses) as well as any other sources of cash that weren’t part of a taxed paycheck (interest from savings accounts, for example).
- Your expenses. This includes everything you paid for with that income: mortgage payments or rent; groceries; utilities like water or electricity; transportation expenses such as gas mileage; childcare costs (if applicable); etc. You’ll also want to include any deductions you’re eligible for here—things like alimony payments or student loan interest can be subtracted from your taxable income if they apply to your situation.
- Business mileage reimbursement records—you may get reimbursed by an employer for mileage driven on official business trips or errands related to work responsibilities during the year (this is called “commuting” when it relates specifically to driving between home and work). If so, keep track of these numbers throughout the rest of 2022 so that they’re available when it comes time for filing your tax return.
Track your business mileage
To get the most out of your tax return, you’ll want to make sure you’re tracking all of your business mileage. This can be done by using a mileage tracker app or keeping a log in the car. If you don’t have access to a car (or just don’t want to keep track), there are other ways to calculate the miles driven for work-related purposes:
- Use an online tool like Google Maps’ trip planner function if you’d like more accuracy in estimating how many miles were driven for work-related reasons during each trip (compared with just relying on memory).
- Keep track of receipts for gas purchases throughout the year so that no single day’s worth of gas goes unaccounted for when filing taxes at year-end.
Maximize your deductions with an IRA.
What is an IRA? An individual retirement account (IRA) is a tax-advantaged savings vehicle that allows you to save for retirement.
IRAs give you flexibility and control over how your money is invested and when it’s withdrawn. If properly managed, IRAs can help you build wealth for future goals such as college tuition or buying a new home.
You can set up an IRA at a brokerage firm or mutual fund company such as Fidelity or Schwab. You’ll need to fill out the paperwork required by these companies, which will include providing your name and address, Social Security number, and some other personal information about yourself that may allow them to recognize whom you are based on previous transactions with them (such as opening up another type of investment account).
If you have an IRA account, you can max it by year-end to make sure you increase the amount of money you can deduct from your taxable income.
If you’ve taken on new deductions, start collecting the documentation now.
When you have a legitimate deduction that you think might save you money on your tax bill next year, it can be tempting to get excited and jump right into claiming it. However, when it comes time to file your taxes, having all of the necessary documentation takes up valuable time.
If possible, start collecting documentation when it becomes available so that by end of Jan. 2023, when the IRS opens the tax season, all of the information is already in one place and ready for use. The best way to do this is by creating folders or subfolders in an organized filing system that includes both physical files and digital records like bank statements or receipts from purchases made throughout the year so they don’t get lost among other documents (keep them safe!).
I always encourage my followers to make electronic copies of all documents and upload them to online storage.
Make sure that everything about those deductions—how much was spent out-of-pocket; what type of expense was incurred; if there were any related expenses—is clearly spelled out in each file with supporting evidence such as receipts and bills showing the amount paid at checkout counters.
Frequently Asked Questions
- Can I File my tax return by myself?
Yes, you can. But it is always recommended to hire a trained tax pro like me to make sure you maximize tax savings and avoid making punishable mistakes on your return.
- How do I File a return?
You can file electronically or using paper filing (through mail). But the IRS encourages taxpayers to file electronically to avoid losing some information or delays.
- What happens if don’t file taxes?
This all depends on whether you owed taxes or not. But generally, if you fail to file your taxes on time, could encounter a Failure to File Penalty. The penalty for failing to file represents 5% of your unpaid tax liability for each month your return is late, up to 25% of your total unpaid taxes. If you’re due a refund, there’s no penalty for failure to file
If you don’t owe taxes, nothing happens. Low-income earners falling below the minimum tax bracket usually don’t owe taxes. But failure to file may make you lose some government benefits such as the Child Tax Credit.
