Tax season is here and it\u2019s time to start thinking about your 2022 tax return. Working on your taxes might seem intimidating, but it doesn\u2019t have to be. Here are eight ways you can get ready for Tax Day, whether you\u2019re working with an accountant or using tax preparation software like TurboTax.<\/p>\n\n\n\n
Highlight April 18, 2023 on your calendar before you do anything else. This is the date by which you must either file your tax return or Form 4868<\/a> to get a tax extension. It\u2019s also the deadline to contribute to an Individual Retirement Account (IRA) for 2022 if you haven\u2019t already maxed yours out. Tax Day is often April 15, but these deadlines are slightly later this year because of the Emancipation Day holiday in Washington, D.C. and the Patriots\u2019 Day holiday in Maine and Massachusetts. Victims of the severe storms in California within certain counties<\/a> have until May 15, 2023 to file their tax returns and make tax payments. You don\u2019t need to wait until the deadline to submit your tax return\u2014you can do so as soon as you have all the necessary documents. <\/p>\n\n\n\n Starting in January, you should receive tax paperwork from your employer and your banks. The documents you\u2019ll need to file your taxes will vary depending on your situation. <\/p>\n\n\n\n Here are some of the forms you might need:<\/p>\n\n\n\n You may also need various kinds of 1099s, including:<\/p>\n\n\n\n Other employer provided forms might include:<\/p>\n\n\n\n Wealthfront clients can download their tax documents\u20141099-R for IRA withdrawals and consolidated 1099s for taxable accounts\u2014directly from their dashboard<\/a> by clicking on the menu item labeled Documents<\/a>. These forms will become available starting in late January or February, but you may receive additional correction documents<\/a> going into March.<\/p>\n\n\n\n Was 2022 a big year for you? If so, those life events may come with some tax breaks.<\/p>\n\n\n\n If you got married:<\/strong> It\u2019s time to decide if you\u2019ll file your taxes separately or jointly<\/a>. For most people, it makes sense to file your taxes jointly. This article<\/a> 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. <\/p>\n\n\n\n If you purchased a home: <\/strong>You may be able to deduct your mortgage interest on mortgages up to $750,000 and property taxes\u2014part of your SALT burden<\/a>; limited to $10,000 a year.<\/p>\n\n\n\n If you had a baby: <\/strong>For any child in your family younger than 17, you may be eligible for a $2,000 tax credit, $1,500 of which may be refundable<\/a>. 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 child care. Remember to fill out a new W-4 with your employer, as you\u2019ll now have an additional withholding allowance.<\/p>\n\n\n\n If you bought a car:<\/strong> If you bought a car in 2022, the purchase could impact your taxes. If you itemize your deductions\u2014more on that below\u2014you can deduct the sales tax you paid on the purchase regardless of whether you bought it new or used. You may also qualify for a nonrefundable<\/a> tax credit of $2,500 to $7,500 if you bought a plug-in hybrid or electric vehicle<\/a>. To claim this credit, fill out Form 8936<\/a> and file it with your tax return. Keep in mind that 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.<\/p>\n\n\n\n If you installed solar panels:<\/strong> If you purchased and installed solar panels on your home during 2022, 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. The solar system has to be placed in service during 2022 for the credit to apply for the 2022 tax year.<\/p>\n\n\n\n When it comes to tax deductions, you have two options: <\/p>\n\n\n\n To decide if you want to itemize, add up your various deductible expenses such as:<\/p>\n\n\n\n If the total reaches more than $12,950 for single filers or $25,900 for joint filers, you\u2019ll want to itemize and file a Schedule A (Form 1040)<\/a>. If you choose not to itemize, you\u2019ll file a return claiming the standard deduction and Schedule A won\u2019t be included. If your spouse itemizes, then you\u2019ll need to do so as well.<\/p>\n\n\n\n Regardless of whether you take the standard deduction or itemize, you can take what are called above-the-line<\/a> deductions which will further reduce your taxable income. <\/p>\n\n\n\n Above-the-line deductions include:<\/p>\n\n\n\n Individual Retirement Accounts (or IRAs) are a great type of account to consider<\/a> 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\u2019re planning to contribute to an IRA for the 2022 tax year, April 18, 2023 is the deadline to do so, with the exception of victims of the severe storms in California within certain counties<\/a> who have until May 15, 2023. The annual combined contribution limit for traditional or Roth IRAs is $6,000\u2014$7,000 if you are 50 or older. If you\u2019re opening and funding a new IRA at Wealthfront, we recommend doing so by April 12 to ensure the account is funded by the April 18 deadline.<\/p>\n\n\n\n If you\u2019re interested in funding an IRA but you\u2019re not sure which kind to use, check out Wealthfront\u2019s IRA Account Selection Tool<\/a> to learn more about your IRA eligibility. Wealthfront offers traditional IRAs, Roth IRAs, and SEP IRAs, as well as easy Roth conversions<\/a>. You can transfer funds directly from your Cash Account<\/a> to your Wealthfront IRA.<\/p>\n\n\n\n Financial markets were volatile for much of 2022. 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<\/a>. <\/p>\n\n\n\n Tax-loss harvesting<\/a> involves selling investments that have declined in value, generating a loss you can use to lower your taxes. If you have an investing account<\/a> at Wealthfront, we automatically harvest your losses for you. If you use TurboTax<\/a>, you can automatically import your tax-loss harvesting information.<\/p>\n\n\n\n If this sounds complicated, especially if you sold employee stock options this past year, it\u2019s a good time to ask yourself if you should hire an accountant. Typically, this is a good move if your taxes are complex \u2014say, you own a business, you\u2019re subject to the Alternative Minimum Tax<\/a> (AMT), or you receive K-1s<\/a>. For more information, check out our blog post about who should consider hiring an accountant<\/a>.<\/p>\n\n\n\n If you plan to file your own tax return, there are a number of tax preparation programs to choose from including TurboTax, Credit Karma Tax, TaxAct, and TaxSlayer. If you\u2019re a Wealthfront client who uses TurboTax, you\u2019ll get up to $20 off the cost of filing<\/a>, and can use TurboTax Live to either consult with a CPA or hire one to file your taxes for you. <\/p>\n\n\n\n Depending on your tax withholdings and the estimated taxes you\u2019ve paid on any income not subject to withholding, you could either receive a refund from the IRS or owe money on your 2022 taxes. <\/p>\n\n\n\n2. Gather your tax documents<\/h2>\n\n\n\n
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3. Review your year<\/h2>\n\n\n\n
4. Decide if you\u2019ll itemize your deductions<\/h2>\n\n\n\n
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5. Contribute to your IRA<\/h2>\n\n\n\n
6. Use your harvested losses<\/h2>\n\n\n\n
7. Consider working with a tax professional<\/h2>\n\n\n\n
8. Determine how you\u2019ll pay<\/h2>\n\n\n\n