Tax season officially began on January 23, 1 but don’t feel bad if you forgot to start then. It was also National Pie Day, and if you forgot to celebrate that, you still survived. Anyway, enough with the small talk and procrastination. Let’s do those taxes!
April 18 is The Day
The deadline for submitting 2022 tax returns—or to request an extension—is April 18. This date is moved from April 15 due to the weekend and a holiday in Washington D.C. Taxpayers who request an extension will have until October 16, 2023 to file their returns. As always, any taxes due will already be due on April 18, so the clock for any penalties and interest start then and not in October.2
First Things First
Tax professionals get busier and busier as the tax deadline approaches. If you haven’t scheduled time with them already, now is the time. Gather your relevant documents and forms. Whether or not you’re getting help with the process, you don’t want to miss any essential tax-related items. If you already have a financial advisor, touch base with them about taxes. Their understanding of your long-term financial and retirement planning will help guide you with any decisions you can still make regarding this year’s taxes. Of course, if you don’t already have someone helping you with your money management, tax season is a good time to find someone.
Last-Minute IRA Contributions
It’s not 2022 any more, and that’s fine for many reasons. For one, you still have until this year’s tax deadline day to make IRA contributions. This could directly reduce your tax obligation, but you’ll want to think it through first. Also, contributions limits and the resulting deductions vary substantially based on filing status and income.3
High earners eligible for a full or partial IRA tax deduction can benefit greatly by making a contribution before the deadline. But others (especially those who have a long way to go until they turn 59 1/2 and expect to climb several tax brackets along the way) may see limited benefits and might gain greater long-term tax advantages from a Roth IRA. Of course, this decision suggests a conversation with your tax professional.
Your IRS Safety PIN
Each year, the IRS issues unique, six-digit Identity Protection Personal Identification Numbers in an effort to help prevent tax fraud and identity theft. You will sometimes see this written out as “Identity Protection PIN” or simply “IP PIN.” Frankly, the IRS doesn’t make it very clear who already has an IP PIN or who should have one. Either way, you can request one, and having an IP PIN gives you another layer of protection from identity theft.4 Here is a link to the IRS page where you can get your IP PIN if you don’t already have one, or find out what it is for this year. By the way, the IP PIN is for federal returns only, not for state returns.
Speedy Refunds
In a world where online orders arrive at your doorstep the next day or even earlier, three weeks sounds like an eternity. But not for the IRS. This year, they’ve (almost) promised that you’ll receive a refund (if one is due) within 21 days of filing your taxes electronically. The keywords here are “electronically” and “most taxpayers.” In other words, no guarantees, but filing electronically will certainly skip you ahead of all the other filers who mail their returns.
The Early Bird
Not everyone looks at April 18 and says that’s exactly the day I’ll file my taxes. Of course, for any taxes due, that is the day. But many choose to file sooner than later, and here are just three good reasons to consider doing it this year:
* Faster Refund: If you are expecting a refund, you would likely get it sooner (fewer filers ahead of you, whether they file electronically or by mail).
* Better Financial Planning: Meeting with your financial advisor and tax professional sooner than later means they’ll have more time to help you with planning and potentially suggesting last-minute moves. And, if you will owe taxes by the deadline, your advisor can make sure the cash is available without disrupting your long-term investment plans.
* Relaxation: Rushing to make deadlines—especially when it comes to taxes—never makes one’s blood pressure go down. By getting your taxes done early, you can refocus earlier on enjoying life with friends and family.
The Takeaway
Tax season can be a complicated and overwhelming time, but with the right planning and strategy, it’s always the best time to minimize your tax burden and focus on your financial goals. As always, the earlier you start, the easier it will be to navigate the tax process without missing any opportunities. Your financial advisor can help you align your overall tax strategy with your investment and retirement planning, but make sure to consider working with a tax professional for tax management and filing specifics.
Sources:
1 https://www.irs.gov/newsroom/irs-sets-january-23-as-official-start-to-2023-tax-filing-season-more-help-available-for-taxpayers-this-year
2 https://www.irs.gov/newsroom/irs-sets-january-23-as-official-start-to-2023-tax-filing-season-more-help-available-for-taxpayers-this-year#:~:text=January%2023%3A%20IRS%20begins%202023,prior%2Dyear%20income%20to%20qualify.
3 https://www.forbes.com/advisor/retirement/last-minute-ira-contributions/
4 https://www.irs.gov/identity-theft-fraud-scams/frequently-asked-questions-about-the-identity-protection-personal-identification-number-ip-pin
Link to Get IP PIN: https://www.irs.gov/identity-theft-fraud-scams/get-an-identity-protection-pin
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