With the 2023 filing deadline now behind us, it’s imperative we utilize every day available to prepare for next tax season. What can individuals do to make sure they don’t overpay their tax bills, file on time, maximize returns on investments, get the best assistance possible, and play it safe when acquiring cryptocurrency?
Fortunately, there are plenty of ways to get ready for 2024 and stop worrying about tax deadlines, rates of return, and maximizing IRA investments. Here are a few of the things tax-savvy filers are doing now to prepare for next tax season.
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Personal Tax Tips to Help You Prepare for Next Tax Season
1. File Early
Many taxpayers dismiss the idea of filing earlier than the deadline requires, but it often makes very good sense to do so. Unless you expect to owe a large sum of money to the government, paying early does two things. First, it helps get your return processed and approved faster. Second, if you’re expecting a refund, you’ll receive it weeks, or even months, sooner if you file early.
2. Leverage the Power of Pass-Through Income
Rental real estate, in the form of REITs (real estate investment trusts), is one of the most effective ways to reduce taxes through targeted planning. Those who put REIT shares in their IRAs still get the appreciation and income benefits, while the growth of the account enjoys tax deferral.
One of the keys to the REIT tax advantage is that the investments are considered pass-through forms of income. As long as they meet the basic Internal Revenue Service requirements, there’s no corporate tax imposed, which translates to more money in the pockets of investors who buy REITs.
3. Pay for Professional Help
Don’t balk at the prospect of paying an Enrolled Agent (EA) or CPA (certified public accountant) to prepare and file your tax documents. It’s well worth the moderate fee. Not only will you get expert advice about how to minimize the amount you owe, but professionals like EAs and CPAs can triple-check all of the math, deductions, and forms before submitting the entire return to the IRS. Then, if there are any problems later on, your preparer can speak to the government on your behalf.
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4. Be Careful with Cryptocurrency
Cryptocurrency is still new to most investors. Keep in mind that unless you are a professional trader, you’ll have to treat any of these assets, like bitcoin, as property. That means reporting either long-term or short-term capital gains only when you sell the alt-coins. Never assume that because the blockchain is anonymous that you can ignore the tax consequences of owning, using, saving, and investing in cryptocurrency.
5. Keep Accurate Records
Even if you hire an experienced tax professional, you will still need to keep detailed financial records in order to file an accurate and complete tax return. Professionals like EAs and CPAs can only work with the documents and information you provide to them.
Remember that most problems with the IRS are about errors of omission, which usually means missing documents or unreported income. Ask your preparer how to maintain excellent financial records throughout the year. They can help you find a software product that makes the job simple.
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How will you use these five tips to prepare for next tax season? Please share your thoughts in the comments below.
