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Small Steps to Prepare for Income Tax Season

February 2024

Barbara O’Neill, Ph.D., CFP®, AFC®
Distinguished Professor and Extension Financial Management Specialist Emeritus
Rutgers Cooperative Extension

It's February and income tax season is well underway with a filing deadline for 2023 taxes on April 15, 2024. About 45% of electronically-filed (e-file) tax returns and 51% of all tax returns are self-prepared and the remainder are prepared with assistance from professional tax preparers and non-profit tax assistance agencies.

Regardless of who prepares your tax return, it pays to review your financial situation and organize your financial records beforehand. Below are ten small steps to prepare for income tax season:

Create a Tax Record Center- Gather tax-related documents in one physical and/or digital place. Storage areas can include a large manilla envelope, file folders, envelopes, a dedicated desk drawer, a flash drive, a cloud server, and more. Getting records in order before starting work on a tax return will likely save time and/or money.

Line Up Resources- Choose a tax software program (e.g., TurboTax, H&R Block, TaxAct) or line up a non-profit or professional tax preparer. Detailed reviews of tax software programs are available online. For paid preparers, ask about their expected timeline for preparing tax returns and how much they charge (e.g., flat fee or hourly).

Gather Income-Related Documents- Collect 2023 income records including W-2 forms from employers and various 1099 forms including 1099-INT for interest and 1099-DIV for dividend income, 1099-MISC for payments of more than $600 from a business (e.g., prize money), 1099-NEC for self-employment earnings, 1099-B for the sale of securities, and 1099-R for distributions from pensions, annuities, and retirement savings plans (e.g., IRAs).

Review Lifestyle Changes- Identify changes that occurred in 2023 that affect your income tax liability. Examples include a new job, starting a business, unemployment, retirement, receipt of inherited assets, and more. Other tax triggers are reaching age 65 (extra $1,500 standard deduction) and 73 (start of required minimum distributions).

Update Tax Filing Status- Adjust your tax return for significant life changes such as marriage/remarriage, divorce, widowhood, and the birth or adoption of a child. You may be eligible for new tax breaks (e.g., the Child Tax Credit) or find yourself paying more taxes (a widow(er) who must now file an individual tax return).

Refresh Your Memory- Pull out last year's (2022) income tax return and review it. Note the tax forms that were filed and changes in income, tax deductions, and tax credits that took place in 2023. If income increased and tax deductions and/or credits decreased or remained the same, expect to receive a smaller refund or even a tax bill.

Create Categories- Group similar documents together to facilitate the subtotaling of numbers on your tax return. Examples of “like items” include bank statements, investment (e.g., mutual fund) statements, retirement plan statements, and income-related documents (see above).

Tally Up Itemized Deductions- Skip this step if you are one of 90% of tax filers who do not itemize deductions because the standard deduction ($13,850 for singles; $27,700 for married couples filing jointly in 2023) is larger. If you are in the other 10%, tally up mortgage interest, charitable contributions, property tax, and medical expenses.

Prepare for a Tax Audit- Make sure that information that will be reported on a tax return has complete documentation to back it up. This includes paper or electronic statements, 1099 forms, acknowledgements for charitable donations, and receipts for tax-deductible business expenses (if self-employed).

Consider Last Minute Moves- Contribute to a prior-year (2023) retirement savings plan by April 15, 2024. This includes a Roth and/or traditional IRA for all workers and a simplified employee pension (SEP) for solopreneurs.

For information about 2023 tax brackets, visit the Rutgers Cooperative Extension Tax Information webpage.