Ten Tips for Tax Filing

It’s tax time again!

I carve out time in late January and early February to pull together the documents and work to get my return filed by the end of March. Today is February 21, and I just finished filing two days ago. If you’re reading this in March, you may be just getting started and feeling overwhelmed. Filing yourself is an excellent option if you have a straightforward tax picture, but don’t underestimate the value of hiring a tax pro, especially if you have a complex situation like business ownership or executive compensation. We have contacts in our network to whom we can refer you. If you’re interested in a deep dive on filing your taxes, click here. Otherwise, here’s ten tips for tax filing.

1. Before you start filling out forms, gather all your documents. Ensure you have all the tax reporting forms from your bank and investment accounts. Any account The Dala Group manages is set for you to receive a paper copy. Look for the tax letter we send detailing the taxable events associated with the wealth management strategies we helped you execute.

2. The top section of the form is where you tell the government who you are, where you live, the status you will use for filing, and the make-up of your dependents. The first several lines are straightforward, where you give all your basic vitals. It is important to get your Social Security number right so they know who to tie all the income and tax information to.

3. List and choose the correct type of dependent. When my son turned 17, I forgot to account for the fact that he no longer qualified for the Child tax credit ($2,000), and thus, I had to pick ‘Credit for other dependents’ instead and take a smaller credit ($500).

4. Report ordinary and qualified dividends correctly. Qualified dividends are super cool because you are taxed at a lower rate on that type of income. Many of the investments we choose in your taxable accounts generate qualified earnings.

5. For those collecting Social Security, line 6 has two boxes showing your taxable and non-taxable benefit amount. Those two boxes should never be the same amount because a maximum of 85% of your benefit is subject to tax.

6. Most of us will take the standard deduction because Congress significantly raised the standard deduction in 2017. The itemized deduction could be more advantageous if you’re charitably minded or had a boatload of out-of-pocket medical expenses.

7. The first bit of your taxable income has a lower rate applied than the last dollars you earned. These are called marginal tax brackets. That means you don’t pay the higher rate on all your income, only the amount that falls in the higher bracket.

8. Deductions and credits reduce the amount of tax you owe. Deductions reduce the amount of your income subject to tax, whereas credits reduce, dollar for dollar, the taxes you owe.

9. If you are self-employed, make estimated payments on schedule. You don’t want to get behind on making payments and feel sick when you see the large bill when you file.

10. Minimize your refund. if you get a lot back, it isn’t a gift. It simply means you paid too much to the government, and now they are giving your money back with no interest.

We’re Here to Help You Get Filing Right

If you want someone on your financial team who can share the burden of figuring out your tax picture, The Dala Group is here to serve you. We offer immense value to our clients in the way of tax planning. All tax services are included in our wealth management fee. If you’re an existing client and haven’t taken advantage of these services, upload your return today. We’ll produce a tax report summarizing your return and recommendations for corrections or tax-saving strategies. If you’re not a client and you’re interested in discussing how we can help you plan for taxes, schedule an intro call with us.