The saying goes that “time flies when you’re having fun.” Organizing your tax information may not be fun, but the time is flying. The April 15, 2024 deadline is only ninety days away.
Your tax preparer is likely to send you a booklet, often referred to as an organizer, that will include a questionnaire to help keep your information organized and accurate. Mistakes can be costly and embarrassing.
For example, you may have traded Bitcoin, and the transaction was not reported to the IRS. This type of oversight can result in penalties, interest, and a potential loss of professional license.
There may be changes in your circumstances or lifestyle that need to be included or reported. Some may be simple, such as you moved in the past year and your address needs to be updated.
If you were married during 2023, you and your spouse will no longer file your own single-tax status tax returns. You will now file your first Married Filing Jointly return. That sounds almost romantic, but the outcome may be surprising…a “marriage penalty”.
A marriage penalty is when a household’s overall tax bill increases due to a couple marrying and filing taxes jointly. A marriage penalty typically occurs when two individuals with similar incomes marry; this is true for both high- and low-income couples.
Currently, all tax brackets for married filers are exactly double those for single filers, except for the top 37 percent marginal rate, in which case the tax bracket for married filers is just 20 percent wider than for single filers. As such, marriage penalties at the federal level are generally only felt at very high-income levels.
If you don’t like the outcome of Married Filing Jointly, filing Single is no longer an option. To separate your returns, you will need to file Married Filing Separate, which is usually a more costly choice.
If you are in a low tax bracket, the only remaining tactic to affect your income to pay less tax is your charitable contributions. It is too late to make an impact on your 2023 taxes, but if you are interested in hearing more about philanthropy and the impact it can have on your income and estate taxes, your One Financial Services advisor will be glad to help you explore those opportunities. Getting started early in the 2024 tax year would be time well spent.
If applicable, examine and evaluate how you are saving in your company-sponsored retirement plan…your 401K. Many plans now offer a Roth-401K. The difference in the short term is you will not lower your taxable income and may even owe more tax if you choose to participate in a Roth-401K. But with the after-tax contributions going into the Roth-401K, your eventual withdrawals later in retirement will be tax-free. Would you give up tax savings now to be tax-free in your retirement withdrawals later?
There are many aspects to organizing and accurately filing your taxes. Your One Financial Services team is here to assist and advise you on tax planning.
And we not only want to help our clients, we want to help the environment. As we all try to be a little more ecologically friendly in our choices, we are now offering the option of PDF copies of your return in place of hard copies. Let us know which you would prefer.