It’s that time of year again: Tax Season! While it may be my favorite time of year, to many people this period is challenging, confusing, and sometimes overwhelming.
Tax Day is Tuesday, April 18, 2023, and many people choose to hire a CPA or tax professional to prepare their tax returns. If so, the professional will likely ask you to complete a Tax Organizer or Checklist.
The Benefits of Completing a Tax Organizer
This organizer may ask a lot of questions including personal information, sources of income, and any deductions or credits that might apply to you or your spouse. Filling this out accurately and wholly is to your benefit for the following reasons:
- It will save you and your CPA time. This means less time and stress over the phone or email for both of you.
- The tax return can be prepared more accurately. If you provide your CPA with complete and accurate information and tax documents, they can then prepare a correct tax return. This reduces the chance of those unwanted IRS letters.
- Your tax return will be prepared more quickly. This may avoid having to file an extension while the CPA is waiting on information from you.
- It may save you money. If the information is organized, then it’s likely the tax return can be prepared in less time, saving you unnecessary charges since many CPAs charge hourly rates.
- It’s a good format for providing organized information to your CPA that they may not otherwise know about. An example of this would be a property sale or a qualified charitable distribution.
What is a Qualified Charitable Distribution?
A qualified charitable distribution (QCD) is a distribution from your IRA directly to a charity. The strategy is available to you as soon as you reach age 70 ½ but many clients start using the strategy once they start taking out required minimum distributions (RMDs).
A QCD is a way to reduce your RMD and can reduce your tax liability. Unfortunately, when you receive the tax form showing the IRA distribution (Form 1099-R), it doesn’t reflect any QCD was made. I recommend telling your CPA that you made a QCD on the tax organizer and provide the appropriate documentation (such as account history or receipt) to show this. Otherwise, you could end up paying more taxes than you should.
Additional Tax Saving Tips for the 2022 Tax Year
Most tax minimization strategies for the 2022 tax return must have been completed before the end of last year. However, there are a few tax savings strategies still available to you now.
- You can still make a Roth or Traditional IRA contribution, up to $6,000 (or $7,000 if you’re age 50 or older) per individual for 2022. The deadline for this is April 18th or even October 16th if you file an extension.
- You can also still make tax-deductible HSA contributions if you have a qualified high-deductible medical plan. If you are self-employed or an owner of a business, then you may still be able to make 2022 employer contributions for many types of retirement plans including solo 401(k) or SEP plans. Please consult your tax preparer or financial advisor to discuss this since there are income limitations and other items to consider.
Extension for Taxpayers in a Disaster Area (Alabama, California, Georgia)
The IRS extended the tax filing deadline until October 16, 2023, for certain taxpayers in California, Alabama, and Georgia due to severe storms and flooding. Please discuss with your tax preparer to determine whether you are eligible for this extension.
Among other things, this also means that eligible taxpayers will also have until October 16 to make 2022 contributions to their IRAs and health savings accounts (as outlined above). For all of the information regarding this extension, please read the IRS press release.
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