The 2023 tax season is upon us, but the vast majority of Americans haven’t thought much about filing their tax return yet. And there’s a reason for that—most people hate filing taxes and want to put it off for as long as possible!
But, more than likely, you’re eventually going to have to bite the bullet and file taxes this year. And since there’s no time like the present, maybe now is a good time for you to get started.
That’s why we’re providing the following tax preparation checklist—along with additional tips and advice to help you this tax season. The sooner you finish this year’s tax return, the sooner you can get it off your mind once again.
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When Is the 2024 Tax Deadline?
For most people, the deadline for filing your 2023 federal income tax return is April 15, 2024. But residents of Maine and Massachusetts get two extra days (to April 17) to file their returns. That’s because April 15 is a holiday in those two states (Patriots’ Day), and April 16 is a holiday in Washington, D.C. (Emancipation Day).
However, before you get too focused on the tax filing deadline, check to see if you even need to file a return. Depending on your age and filing status, your income might be below the filing requirement threshold, which means you might not have to file a federal tax return this year.
On the other hand, even if you’re not required to file a return, it’s sometimes worth the effort to file one anyway. For instance, you might trigger a tax refund if you can claim one or more of the following tax credits:
— Earned income tax credit
— Additional child tax credit
— American Opportunity tax credit
— Credit for federal taxes on fuels
— Premium tax credit
— Credits for sick and family leave
You might also be due a refund if you had taxes withheld from your paycheck (or other income) or made estimated tax payments in 2023. But you need to file a return to get that refund check!
Should You File Your Tax Return Now?
There are good reasons to file (or at least start) your tax return now. Filing as early as possible reduces the risk of tax return fraud, and you’ll get any tax refund sooner.
If you owe taxes, you’ll have more time to get the money together (you can file now, but pay in April).
Plus, if you’re looking for a tax preparer, you might not be able to find one if you wait until the last minute.
Tax Prep Checklist With Some Steps to Follow
Sherlock Holmes famously said “begin at the beginning” when informing how you should retell a series of events. And that makes sense not only for this famed detective, but for how you should prepare for your tax season as well.
Hopefully, if you’re required to file a tax return this year, having the information below will make tax season a little less stressful.
1. Gather Your Receipts and Tax Documents
The first thing you’ll want to do before diving into the tax forms and instructions is collect and organize all the documents you’ll need to complete your tax return. (Hopefully, you’re not keeping them in a shoebox.)
In addition to W-2 forms from your employer reporting wages, there’s a long list of similar forms you could receive. For instance, you might have received one or more 1099 forms showing other types of income, such as interest, dividends, non-employee compensation, pension payments, Social Security benefits, distributions from retirement plans, and the like. Or, perhaps, you got a 1098 form in the mail reporting mortgage interest, student loan interest, or tuition paid in 2023. If you have an ownership interest in a small business, you should receive a Schedule K-1 showing your share of the business’s income, deductions, credits, and other items (although you may not have received this form yet). That, of course, is not an exhaustive list…there are other “information forms” you could get, too.
Just remember that the Internal Revenue Service (IRS) also receives a copy of most forms. So, don’t even think about reporting a different amount on your tax return. If there’s an error on a form you receive, ask the sender to issue a corrected form so that the IRS gets the right information. Though, if all else fails, you can properly report any incorrect information contained on a tax form provided by someone else on your own tax return. Call the IRS at 800-829-1040 for further instructions if this happens to you.
You’ll also need receipts for any deductible expenses or other costs for which you plan to claim a tax credit. Have any records of 2023 financial transactions on hand as well, including records for any cryptocurrency or other digital assets you bought or sold last year.
Further, if you own rental property, you’ll need rental income records, as well as documentation showing real estate taxes and any personal property taxes paid during the tax year. Further, you should gather information related to your rental asset (e.g., cost, date placed in service, etc.) so you can claim MACRS depreciation on your rental. If your property suffered damage and you had a successful claim against your losses, you’ll also want records regarding any insurance reimbursements that lower your business loss.
Related: What Tax Bracket Are You In?
2. Hiring a Tax Preparer: Caveat Emptor
Be careful if you’re looking for someone else to prepare your tax return. Just because someone hangs up a “Tax Preparer” sign doesn’t mean they’re actually qualified to do the job. It’s best to hire a credentialed preparer, such as a CPA, enrolled agent, or even a tax attorney. The IRS has an online directory that can help you find a credentialed tax preparer near you.
To weed out dishonest or incompetent preparers, you also might want to check out the preparers’ reputation in the community (e.g., check with the Better Business Bureau). A referral from a trusted friend or family member is another option. For CPAs and tax attorneys, contact the licensing authority in your state (e.g., bar association) to see if there have been any disciplinary actions taken against the prospective tax preparer. You can verify the status of an enrolled agent on the IRS website.
Also make sure you ask about fees up front. The complexity of your return, the preparer’s experience, and various other factors drive your bill up or down. If you can’t get an exact quote, at least make sure you understand the overall pricing structure, including what’s covered and what’s not (e.g., state return, e-filing fees, audit support).
And whatever you do, don’t hire a tax preparer if his or her fee is based on a percentage of your tax refund, you’re asked to sign a blank tax return, or he or she won’t sign and include a Preparer Tax Identification Number (PTIN) on your completed return. Those are big red flags about the preparer’s honesty and credibility!
If you have problems with a tax preparer, you can file a complaint with the IRS using Form 14157 and/or Form 14157-A. You can also report problems with a CPA or tax attorney to the state licensing board.
Related: Do You Have to File Taxes This Year?
3. Doing It Yourself
There are a few options for DIYers who want to tackle their own tax return.
The most common route is to use tax preparation software from companies like TurboTax or H&R Block. Prices, functionality, and features for these tax prep programs vary widely, so make sure the software you select is right for your situation and budget. If you need a little help picking the right program, check out our tax software rankings.
If your 2023 adjusted gross income is $79,000 or less, you might be able file your tax return for free using private software under the IRS Free File program. However, pay close attention to each company’s eligibility requirements. Depending on your situation, you might not qualify for a free tax return even if your income is below the income threshold. Eligibility rules for each program and a selection tool are available on the IRS Free File website.
If you feel comfortable enough—and that’s a big if for most people—you can use the fillable forms on the IRS website for free. This is for people who already know their way around the tax forms. Unlike the private tax software programs, no guidance is provided. So, if you’re not comfortable figuring out things on your own, this option is not for you.
Finally, new this year, the IRS has introduced its own tax software through a pilot program called IRS Direct File. The software is similar to commercial tax prep software products already on the market (e.g., it uses an interview-based, question and answer format). Unfortunately, this software is only available to taxpayers with relatively simple tax returns in 12 states.
4. Tax Refund (Ka-Ching!)
Now we get to the good part: tax refunds! Everybody wants a big one, but it’s actually better to have a small refund (or even no refund at all). If you get a refund, all that means is you paid more tax to the government last year than you had to. In essence, you gave Uncle Sam an interest-free loan.
So, if you get a big refund this year, consider decreasing the tax withholding from your paycheck. You can do this by giving your employer a new W-4 Form and making sure all tax credits and tax deductions that you qualify for are reflected. Less withholding this year will likely result in a smaller refund next year—but it also means more money in each paycheck this year. It’s like giving yourself an instant raise!
In addition, if you’re getting a tax refund this year, make sure you e-file your return and have your refund hit your bank account via direct deposit. You’ll get your refund much faster with direct deposit (most likely within 21 days). Once you file your return, you can track the status of your refund using the IRS’s Where’s My Refund tool.
You can have your refund deposit into multiple bank accounts (up to three). You can even have part of it deposited into an individual retirement account (IRA), health savings account (HSA), Archer medical savings account, Coverdell education savings account, or TreasuryDirect account. Another option is to use part of your refund to buy up to $5,000 of Series I savings bonds. Use Form 8888 to make any of these choices.
5. Paying Taxes (Ugh!)
If you owe tax, you can wait until April 15 to pay it, even if you file your return earlier (April 17 for residents of Maine and Massachusetts). You can make payments online or by phone, or you can go old school and mail in a check or money order. You can even pay by cash in-person through one of the IRS’s retail partners (maximum of $1,000 per day per transaction).
What if you can’t pay by the April 15 deadline? You can apply online for a payment plan, or request an installment plan using Form 9465. If you have an “undue hardship” (i.e., you’ll have a substantial financial loss if you pay your tax when it’s due), you can ask the IRS to extend your payment deadline using Form 1127. Other, more complicated options include requesting an “Offer in Compromise” or a temporary delay of the collection process.
6. Need More Time to File?
If for any reason you can’t file your tax return by the April 15 deadline (April 17 if you live in Maine or Massachusetts), simply request an automatic six-month extension by filing Form 4868 or making an electronic tax payment to the IRS. That will push your filing deadline to Oct. 15.
But remember that an extension is only for filing your tax return—not for paying any tax due. So, if you expect to owe taxes this year, estimate the tax you’ll owe and pay that amount by the April 15 or 17 deadline.
Related: How to File a Tax Extension
7. Other April 15 Deadlines: Don’t Forget Your Estimated Tax Payments
There’s more to April 15 than just the tax return filing deadline. If you’re self-employed or have other income not subject to tax withholding, the first estimated tax payment for the 2024 tax year is also due that day.
April 15 is also the last day to contribute to an IRA or health savings account for the 2023 tax year. If you put too much money in an IRA for 2023, it’s the last day to avoid a penalty by withdrawing the excess funds (unless you requested an extension).
Finally, all these April 15 deadlines, except for the estimated tax payment deadline, are extended to April 17 for residents of Maine and Massachusetts.
8. State and Local Tax Returns
Unless you live in a state with no broad-based income taxes—Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, or Wyoming—you might have to file a state tax return, too. In most cases, your state return will be due on April 15, just like your federal return.
However, a handful of states have a later due date, including Delaware (April 30), Hawaii (April 22), Iowa (April 30), Louisiana (May 15), New Mexico (April 30 if e-filed), Oklahoma (April 20 if e-filed), and Virginia (May 1). Some cities, counties, or municipalities might also require local taxes, so be sure you keep abreast of those rules as well.
Smart Things to Do With a Refund
Back to refunds—and what to do with them. If you get a big tax refund, there are all sorts of ways to spend it quickly. You can blow it on a vacation, new TV, jewelry, maybe even a new car. That will give you plenty of short-term satisfaction … but we have some better ideas.
Why not save and invest your tax refund? That way, you’ll have more to spend on more important things later.
If you’re willing to go that route, here are a few smart things to do with your tax refund by category:
1. Invest It (In a Taxable Investment Account)
Investing your tax refund in a taxable brokerage account is a savvy move to amplify your financial growth. Think of it as turning a government return into your personal gain. You can start by choosing a brokerage that aligns with your investment goals and fee preferences (or contributing to an account you’ve already got open).
With this refund, consider your financial goals. That means diversifying into stocks, bonds, exchange-traded funds (ETFs) or mutual funds, and balancing risk with potential rewards. Remember, while taxable accounts offer flexibility and easy access, they also come with tax implications on gains. So, it’s wise to consider long-term strategies and possibly consult a financial advisor to maximize your investment’s potential. This approach transforms your refund into a powerful tool for future wealth building.
2. Invest It (In a Tax-Advantaged Investment Account)
Investing your funds in a tax-advantaged account like an IRA, HSA, or 529 plan is a strategic step towards a more secure financial future. These accounts offer unique tax benefits, turning your contributions into more than just savings.
— An IRA is ideal for retirement, reducing taxable income and growing earnings tax-deferred.
— An HSA offers a triple tax advantage for healthcare expenses.
— A 529 plan is perfect for education savings, with tax-free growth and withdrawals for qualified expenses.
By selecting the right account for your goals, you effectively leverage your money for long-term gains while potentially enjoying tax breaks. It’s a smart move for forward-thinking investors, especially when considering the compounding power of investments in these tax-advantaged vehicles. Simple yet effective, these strategies can pave the way for a financially sound future.
3. Pay Down High-Interest Debt
Utilizing your tax refund to pay down high-interest debt is an incredibly wise financial move. This approach tackles two key financial principles: reducing debt and saving money.
High-interest debt, such as credit card balances, can rapidly accumulate, making it challenging to achieve financial stability. By directing your tax refund towards these debts, you significantly lower the interest you’ll pay over time. This not only eases your financial burden but also accelerates the journey towards a debt-free life.
Think of it as an investment in your financial health; every dollar paid towards reducing high-interest debt is a step towards a more secure and stress-free financial future—not to mention that it offers a guaranteed return by not having to pay that high-interest rate.
Paying down high-cost debt is a practical and impactful use of your refund, transforming a yearly return into a catalyst for long-term financial well-being. Remember, in the realm of personal finance, freeing yourself from high-interest debt is often the first and most crucial step towards building wealth.
4. Start (or Add to) An Emergency Fund
Allocating your tax refund towards starting or bolstering an emergency fund is a strategic and proactive financial decision.
An emergency fund serves as a financial safety net, designed to cover unexpected expenses or financial disruptions, like sudden medical bills or job loss. By dedicating your tax refund to this purpose, you’re essentially investing in your own peace of mind.
Starting or adding to an emergency fund with your tax refund can significantly lessen the impact of life’s unpredictable events on your regular budget. Ideally, we recommend aiming to build a fund that covers a least three to six months of living expenses. This prudent use of your refund not only brings immediate financial security but also lays a foundation for long-term financial resilience. It’s a responsible, practical choice that aligns with sound financial planning principles, providing a buffer that safeguards your future financial stability.
Related: What Tax Bracket Are You In?
Perhaps the best way to lower your federal income tax bill is push yourself down into a lower tax bracket to reduce your tax rate. On the flip side, you certainly want to avoid getting kicked into a higher bracket and increasing your tax rate.
But, of course, under either scenario you need to have a good feel for where you are right now. For that purpose, check out the federal tax brackets and rates that will apply for your next federal tax return.
Related: What’s Your Standard Deduction?
For most people, their largest and most important tax deduction is the standard deduction. However, the standard deduction amounts change every year to account for inflation. Plus, the standard deduction isn’t the same for everyone.
So, before start your tax return or jumping into tax planning mode, you’ll need to know how much your standard will be for the tax year.
Related: Capital Gains Tax: What You Need to Know
Millions of Americans sell stocks, bonds, cryptocurrency, real estate, precious metals, and other types of investment property every year. However, if you sell investments during the year, you might owe capital gains tax on any profits.
The good news is that you’ll pay a lower tax rate on capital gains when compared to income taxes on wages, tips, and other “ordinary” income. On the other hand, there are a few landmines to avoid when you sell investment property. Get all the details with our guide to the capital gains tax.