Tax day is April 15th, but for many U.S. workers, it starts earlier than that. W2s will soon start to arrive, and you can begin the process of filing your tax return. So what happens next? How do you use your tax return smartly to keep yourself ahead of the game in 2023? Let’s take a closer look.
Planning for Your Tax Return
For many people, their tax return is simple. Receive a W2 and enter information into a tax program. Taxes can be done individually, especially when simple, or you can use an accountant. Other people will have more complicated taxes, especially with several 1099s from freelance or contract work, so it can pay to choose a preparer. Here are the steps you should take:
- Choose your accountant or accounting software
- Gather your documents including W2s, 1099s, and receipts
- List your personal information
- Determine if you need an extension
- Plan ahead for refunds or payments
Healthy Ways to Reinvest
If you receive a tax refund, what should you do with it? Many people will use it to buy something they’ve been putting off or saving for later. Some things you can do include:
- Starting or contributing to your emergency fund
- Make a payment to outstanding debt
- Reinvest in your retirement fund
- Use the money to invest in your side hustle or own business
- Save it for something fun
What you want to avoid is splurging or overspending. It may feel like free money, but if you use it the wrong way, you can dig an even bigger hole in time for the next tax season.
DIY or Accountant?
The most considerable determination you can make when planning your taxes is whether you want to do it yourself or hire an accountant. Turbo Tax and other online tax preparation services have free and paid versions. An accountant will cost more based on their rates, but you may get a more complete experience with the peace of mind that you didn’t miss something. There is no right or wrong answer, but it may be worth looking into your options before filing this year.
Filing Before Your W2 Arrives
Some online tax services offer an option for preparing your taxes using a pay stub before you receive your W2. This is an attractive proposition because you can get your refund sooner, but there are pitfalls. It will be based on your estimation of earnings. If you discover you’ve adjusted incorrectly, you could be hit with an audit down the road.
What else do you need to know about protecting your credit this year?
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