8 Ways to Get Ready to File Your 2023 Tax Return

Tax season is here and it’s time to start thinking about your 2023 tax return. Working on your taxes might seem intimidating, but it doesn’t have to be. Here are eight ways you can get ready for Tax Day, whether you’re working with an accountant or using tax preparation software like TurboTax.

1. Mark your calendar

Highlight April 15, 2024 on your calendar before you do anything else. This is the date by which you must either file your tax return or Form 4868 to get a tax extension. It’s also the deadline to contribute to an Individual Retirement Account (IRA) for 2023 if you haven’t already maxed yours out, regardless of whether you file for an extension. You don’t need to wait until the deadline to submit your tax return—you can do so as soon as you have all the necessary documents.

2. Gather your tax documents

Starting in January, you should receive tax paperwork from your employer and your banks. The documents you’ll need to file your taxes will vary depending on your situation. 

Here are some of the forms you might need:

• W-2 from your employer
• Schedule K-1 for income received from an estate, trust, partnership, or S-corporation
• 1095-A for health insurance through the Health Insurance Marketplace
• 5498 for contributions made to IRAs
• 1098 for mortgage interest 
• 1098-E for student loan interest

You may also need various kinds of 1099s, including:

• 1099-NEC—formerly 1099-MISC—for income from contract work over $600
• 1099-DIV for earnings from stocks and mutual funds
• 1099-INT for interest from bank accounts, CDs, and other accounts
• 1099-B for income from selling stocks, bonds, or mutual funds
• 1099-R for distributions from retirement accounts or pensions

Other employer provided forms might include:

• 3921 for exercise of incentive stock options
• 3922 for acquisitions or purchases through an Employee Stock Purchase Plan (ESPP)

Wealthfront clients can download their tax documents—1099-R for IRA withdrawals, 1099-Q for 529 account withdrawals, and consolidated 1099s for all taxable accounts including Automated Investing Accounts, Automated Bond Portfolios, Stock Investing Accounts, and Cash Accounts—directly from their dashboard by clicking on the menu item labeled Documents. These forms will become available starting in late January or February, but you may receive additional correction documents going into March.

3. Review your year

Was 2023 a big year for you? If so, those life events may come with some tax breaks.

If you got married: It’s time to decide if you’ll file your taxes separately or jointly. For most people, it makes sense to file your taxes jointly. This article can show you exactly how to decide. For example, if you or your spouse has an income-based student loan, filing separately could keep your payments from dramatically increasing. 

If you purchased a home: You may be able to deduct your mortgage interest on mortgages up to $750,000 and property taxes—part of your State and Local Tax (SALT) burden; limited to $10,000 a year.

If you had a baby: For any child in your family younger than 17, you may be eligible for a $2,000 tax credit, $1,600 of which may be refundable. If you are married and file jointly, this credit starts phasing out if your income is above $400,000. You may also be eligible for tax credits for childcare. Remember to fill out a new W-4 with your employer, as you’ll now have an additional withholding allowance.

If you bought a car: If you bought a car in 2023, the purchase could impact your taxes. If you itemize your deductions, you can deduct the sales tax you paid on the purchase regardless of whether you bought it new or used. The amount you can deduct is the higher of income or property taxes paid or sales taxes. There’s also a $10,000 deduction cap for taxes paid. You may also qualify for a nonrefundable tax credit of $2,500 to $7,500 if you bought a plug-in hybrid or electric vehicle. 

To claim this credit, fill out Form 8936 and file it with your tax return. Keep in mind this benefit phases out after a manufacturer sells more than 200,000 qualified vehicles, and both Tesla and General Motors passed this threshold in 2022.

If you installed solar panels: If you purchased and installed solar panels on your home during 2023, you could be eligible for a federal tax credit. You can claim the federal solar tax credit using Form 5695; the credit is 30% of qualified solar electricity systems including the panels and installation as long as it was placed in service in 2023 or later.

4. Decide if you’ll itemize your deductions

When it comes to tax deductions, you have two options: 

1. Claim the standard deduction. This allows you to deduct $13,850 for single filers or $27,700 for joint filers from your taxable income this year.
2. Itemize your deductions instead. 

To decide if you want to itemize, add up your various deductible expenses such as:

• Medical bills 
• Charitable contributions 
• State and local taxes—subject to the $10,000 deduction cap
• Property taxes 
• Investment interest expenses 
• Mortgage interest payments 

If the total reaches more than $13,850 for single filers or $27,700 for joint filers, you’ll want to itemize and file a Schedule A (Form 1040). If you choose not to itemize, you’ll file a return claiming the standard deduction and Schedule A won’t be included. If your spouse itemizes, then you’ll need to do so as well.

Regardless of whether you take the standard deduction or itemize, you can take what are called above-the-line deductions which will further reduce your taxable income. 

Above-the-line deductions include:

• Student loan interest payments—income limits apply 
• Unreimbursed moving expenses for a job—this is only applicable for a member of the armed forces on active duty and, due to a military order, you move because of a permanent change of station 
• Health savings account (HSA) contributions 
• 401(k) contributions
• SEP-IRA contributions

5. Contribute to your IRA

IRAs are a great type of account to consider as you save for retirement. IRAs offer a tax-advantaged way to save for retirement and, in many ways, offer additional flexibility compared to a 401(k). 

If you’re planning to contribute to an IRA for the 2023 tax year, April 15, 2024 is the deadline to do so. The annual combined contribution limit for traditional or Roth IRAs is $6,500—$7,500 if you are 50 or older. If you’re opening and funding a new IRA at Wealthfront, we recommend doing so by April 11 to ensure the account is funded by the April 15 deadline.

If you’re interested in funding an IRA but you’re not sure which kind to use, check out Wealthfront’s IRA Account Selection Tool to learn more about your IRA eligibility. Wealthfront offers traditional IRAs, Roth IRAs, and SEP IRAs, as well as easy Roth conversions. You can transfer funds directly from your Cash Account to your Wealthfront IRA.

6. Use your harvested losses

Financial markets were volatile for much of 2023. If you were a Wealthfront client using our Classic or Socially Responsible portfolio, you likely received enough benefit from our Tax-Loss Harvesting service to cover our annual 0.25% advisory fee several times over. 

Tax-loss harvesting involves selling investments that have declined in value, generating a loss you can use to lower your taxes. If you have an investing account at Wealthfront, we automatically harvest your losses for you. If you use TurboTax, you can automatically import your tax-loss harvesting information.

7. Consider working with a tax professional

If the above sounds complicated, especially if you sold employee stock options this past year, it might be helpful to hire an accountant. Typically, this is a good move if your taxes are complex—say, you own a business, you’re subject to the Alternative Minimum Tax (AMT), or you receive Schedule K-1s. For more information, check out our blog post about who should consider hiring an accountant.

If you plan to file your own tax return, there are several tax preparation programs to choose from including TurboTax, TaxAct, and TaxSlayer. If you’re a Wealthfront client, you’ll get up to 20% off TurboTax federal filing options. This year, the IRS’s Direct File pilot is also available to eligible taxpayers in 12 states.

8. Determine how you’ll pay

Depending on your tax withholdings and the estimated taxes you’ve paid on any income not subject to withholding, you could either receive a refund from the IRS or owe money on your 2023 taxes. 

If you think you might owe money, now is a good time to plan for how you’ll pay. You can use your account and routing numbers to pay your tax bill up to the ACH limit of $50,000 directly from your Wealthfront Cash Account if you have checking features activated. 

If you get a refund from the IRS this year, that refund can be deposited directly into an individual Wealthfront Cash Account. To do this, you’ll need to manually input your routing and account number for the deposit, not link your Wealthfront account electronically.

Tax season doesn’t have to be taxing

Tax time rolls around every year, and many people dread it. But if you’re prepared with your paperwork and have a plan, there’s nothing to fear.