Tax Planning Made Simple

Filing your taxes – we'd do almost anything to avoid the process.?

But the truth is, if you don't plan for your tax responsibilities, you could pay much more than necessary.

That's where this article comes to the rescue.?

Please note, I am not a licensed tax professional or certified tax advisor. Any information provided regarding taxes should be considered general in nature and should not be relied upon for tax-related decisions. Please consult with a licensed tax professional for specific tax advice.

The information provided below can help you maneuver through the tax system, how taxes work, what pitfalls to watch out for and a checklist to help you know what you need to do in order to file correctly and on time.

Let's get started!

Common Mistakes to Avoid

To help make sure your tax filing goes smoothly, it's important to be aware of common mistakes and to have all the necessary information and documents on hand. This checklist highlights common pitfalls to avoid when preparing your taxes. Being aware of these can actually help you know what to avoid:

• Incorrect social security numbers: Incorrect or transposed social security numbers can delay processing or result in rejected returns.
• Mathematical errors: Double-check all calculations to avoid mistakes that can result in overpayment or underpayment of taxes.
• Missing information or signatures: Ensure that all required fields are completed and all forms are signed and dated.
• Improperly reporting income: Report all taxable income, including side gig earnings and freelance work, to avoid underreporting and potential fines.
• Not taking advantage of tax credits and deductions: Make sure to claim all eligible credits and?deductions to reduce your tax liability (more on this below).?
• Filing late: File your taxes on time to avoid penalties and interest charges.
• Filing electronically with unsecured software: Make sure to use reputable tax preparation software and a secure internet connection to protect sensitive personal and financial information.

Get Organized: A Detailed Checklist

• Get organized. You'll want to keep good records of your income and expenses, whether in a spreadsheet or an app. The IRS allows you to deduct certain expenses from your taxable income – and if you can't remember how much that was at the end of the year, it will be difficult to claim those deductions on time. You will also want to make sure you have the following:
• W-2 forms from each employer you worked for in the previous year.
• 1099 forms if you received income from freelance work, rental properties, or other sources.
• Receipts for tax-deductible expenses, such as charitable donations or medical expenses.
• Social security numbers for you, your spouse, and any dependents.
• Determine your filing status. The IRS uses your marital status and dependents to determine your filing status. Your filing status determines your tax bracket and can affect the amount of tax you owe or the amount of your refund. The five filing statuses are:
• Single
• Married filing jointly
• Married filing separately
• Head of Household
• Qualifying Widow(er) with Dependent Child
• Find deductions. The first step toward tax planning is to find deductions. Deductions are expenses that reduce your taxable income, thus lowering the amount of money you pay in taxes. They’re essentially the same as tax credits but typically give you more bang for your buck. The most common types of deductions include:
• Medical expenses (ex: co-pays, prescriptions, dental care)
• Charitable donations (ex: cash or goods donated to nonprofits)
• Important reminder about deductions. Remember that not all expenses will work as a deduction on your taxes—some can only be written off if they meet specific criteria or fall under certain categories. For example, if you buy a new suit and donate it after wearing it once, this item cannot be deducted because it has already been worn by another person before being given away; however, if you bought the suit with the intention of donating it then this expense could be written off on your taxes since its purpose was solely charitable giving.
• Use the right tax form. The most common tax forms are 1040, 1040EZ, and 1040A. The form you use depends on your tax situation and filing status. By using the right tax form, you can ensure that your tax return is processed accurately and quickly.
• 1040: This is the standard tax form that most taxpayers use. It is suitable for a wide range of tax situations.
• 1040EZ: This form is for taxpayers with a simple tax situation. You can only use this form if you have taxable income less than $100,000, are under age 65, and have no dependents.
• 1040A: This form is for taxpayers with a more complex tax situation than 1040EZ but simpler than 1040. You can claim certain credits and deductions using this form.
• Tax credits. Check for tax credits and deductions that can reduce your tax liability.

And one last thing, don’t forget to store your tax records for at least three years in case of an audit.

Tips for Ongoing Prep

Check Your Withholding

• Use a paycheck calculator to see if you are getting the right amount
• If not, adjust your withholding
• If you have too much withheld, you'll get a refund
• If you don't have enough withheld, you will owe taxes at the end of the year and have to pay interest on that amount owed until it is paid in full

Track your budget

• If you aren’t doing this yet, this is something you can start next year.?
• It doesn't matter if your budget is written on paper in a notebook or saved as a spreadsheet: keeping track of how much money goes into and out of one's bank account is essential in helping manage finances effectively over time – and will make filing taxes easier too.

Know Your Options

The first step is knowing which taxes apply to you and how they work. There are three broad types of taxes that affect most individuals: income tax, capital gains tax, and estate tax. Income taxes are paid by the government on earned income (wages, tips, etc.) while capital gains taxes are charged when assets are sold for a profit. Estate taxes are used to pay for death benefits for surviving spouses or children of the deceased person's estate.

Each type of tax has its own bracket system; this means that not all income earners pay the same rate of taxation on their earnings. A good rule of thumb is that if your taxable income puts you in a higher bracket than someone with a similar amount but who has less desirable deductions (like student loan interest), then being in that bracket can be beneficial because it gives you more flexibility in planning your finances around those deductions instead of just using them as an afterthought.

Hire a Pro

Tax planning requires a level of expertise that only some people possess. It takes a special group of people, and watching them work is quite impressive. Additionally, tax laws are constantly changing, so you need to be able to keep up with them. Hiring an accountant is a great way to save yourself time and money. Your local chamber of commerce can provide recommendations for accountants in your area who specialize in tax planning and consulting services. You can also look online for reviews from other clients who have used their services, and ask friends if they know anyone who has used them successfully before.

There's no need to wait until tax season. After all, the right steps now can save you money and make the entire process less stressful. Tax planning is a crucial part of financial planning and can help you plan out your finances so that they're compatible with your current situation and future goals.

Key Takeaways

With these tips in mind, you’ll be able to plan your taxes the right way and save money each year. It may seem like a lot to take on at first glance, but the truth is that most people don’t need an expert—they just need to get organized and keep track of their expenses throughout the year so they can make sure it all adds up when April comes around again.

If you want to talk more about your options, feel free to direct message me or click here to schedule some time for a consultation. I am not a tax professional, but I would be happy to discuss with you any concerts you might have and offer professional advice. Let me know what questions you have.

The information above is provided for general informational purposes only and does not constitute financial or tax advice or a solicitation or offer to purchase or sell securities. Individuals should not apply information found in this article to their own personal situation and should consult with their financial professional before investing or making a change to their account. Highline Wealth Partners believes the information contained in this article is from sources believed to be reliable but cannot be guaranteed, thus, Highline Wealth Partners cannot be responsible for any errors in or omissions to this information, or for any consequences that may result from the use of this information. All investments involve varying levels of risk and fees. You should read the investment prospectus carefully before investing. Please read the full disclaimers and disclosures here.

? 2022 Charlesworth & Rugg, Inc, dba Highline Wealth Partners, a registered investment adviser.