Navigating Tax Season: Tips for a Stress-Free Filing

Peter, good to see you.

Not one of my favorite topics today. We're going to talk through how to navigate tax season. You do have tips for a stress-free filing.

Thank you very much. It is that time of year, time to get ready for tax day. And it is stressful, but you say with a little bit of prep, it doesn't have to be. So let's talk through some tips and how to avoid some common mistakes. What steps should clients be taking right now?

The first thing is to get the text right. We're going to be talking about this late January as we record to ensure that we are all fully prepared for tax season. Yeah. Stress-free filing, not only difficult to say, difficult to achieve.

Yeah. And we're going to try here. But number one, be a little patient. I know that people love to jump the gun and want to get this painful process out of the way as quickly as possible.

I've got clients that they want the taxes filed by January 2. The reality is sometimes the documents take a while to get the text right. They take a while to get there, and they can be corrected later and reissued.

So just be a little patient in it. I know that it's a priority for many people to get it done, but wait for all of your documents to get there. Speaking of all of your documents, I think one of the things that we've got to kind of come to grips with in the new world reality being that technology is such a factor. How many of your documents actually even get mailed to you anymore versus how many do you have to go and find in some online portal? Make sure you're aware of where all of your documents are going to be generated from. And then you've got the myriad of documents that you might have to look for, which I think we'll get into that in just a moment. But just kind of prep, right? Prepare yourself.

Be a little patient. Maybe have a running list at least of that if you don't want to keep like account balances everywhere, but at least have a list of who you should be looking out for tax documents from. Employers, gig economy. We've got more people that get them from income sources these days. So there's a lot that goes into being prepared. Just to circle back on something you said though, I think a lot of people do want to file early, not only to get the monkey off their back, but because we hear more and more horror stories of people stealing your tax return.

This is why it lights a fire under me to get it done early. Yeah, I understand that too. I mean, absolutely scary. You got to do things to try to safeguard your data, which is impossible because you get notices from some third party company these days that you've never even done business with. But somehow they had your data and whoops, we leaked it.

So it's just a factor of life. I think identity theft protection is also an important ancillary discussion here that that is something that everybody should probably look into or have. And then I get it that you want to get your tax refund, but just rushing to do a preemptive job and not doing it right isn't going to help you get the maximum refund either. It's probably going to lead to more mistakes than and prevent you from being subjected to identity theft, unfortunately.

And finally, reminder for everybody watching that we have done a video on how to keep your identity safe online so you can get that on YouTube. What's common tax filing mistakes that you see people make? Well, I think number one is really not understanding the progressive tax systems. A lot of people seem to think that, oh, I'm earning X. And so that puts me in this such and such bracket. Maybe I'm earning $200,000 as a married couple. So I'm in the 22% bracket. I'm going to pay 22% in taxes.

That's not how it works. We have a progressive tax system. So first, you've got your standard deduction. And for a married couple this year, it's $30,000.

For an individual, it's $15,000 this year. You don't pay any tax on that first amount. If you itemize, you need to have more than the standard deduction. So it's either or you got the standard deduction or you itemize, whichever is the greater of the two.

I think that's another common mistake. But then you pay 10% on your next chunk of income and 12% on your next chunk of income and then 22% on your next chunk. It's not like you pay 22% across the board. It is a progressive tax system where the more you earn, the higher amount you pay on those higher dollars. And so a married couple filing jointly earning $200,000. Yeah, they're in the 22% bracket, but they probably only pay 16 to 18% effective tax rate. So understanding the difference between tax bracket and your effective tax rate, I think is a big one.

Also, where to adjust if you are having trouble. If you are constantly seeing that you owe a larger chunk than you feel like you should, go to your employer and make sure that your W4 is correct and accurately reflects your situation. That is probably the biggest mistake is that people do not adjust at their employer when they continue to owe too much. And then when you do continue to owe too much, guess what?

Eventually the government's going to say, hey, this is a repetitive thing. We now require you to pay estimated quarterly payments. If you are doing things correctly, in many, many cases, that is something that could be avoided if you've got W2 kind of income. So there's a myriad of additional mistakes on top of that. Not claiming all of your credits and deductions, not being aware of certain tax considerations, not keeping up with paperwork, double checking for errors, misfiling in certain ways, not adhering to deadlines. So I try not to forget anything. So I made a list myself so that I don't forget some of those mistakes. Not fixing past mistakes. Like you get a notice from the IRS like you need to pay attention to that.

And again, one of the big past mistakes is you under withheld at work. Go address that. Fix that mistake. Okay.

Not planning for next year. Right. What documents or information do clients need to gather to make the tax filing process smoother? Oh boy.

Okay. The litany of documents. Of course, if you're working, you've got an employer, your W2 style income results in a W2 tax form. And you need to have one of those from all of the employers. If you are 1099 income, likewise, you need a 1099 form. And the myriad of 1099 forms is pretty extensive. You've got 1099s for income, for interest, for rollovers, for retirement accounts, for government, for dividends. So there's all kinds of 1099 forms out there and you need the right ones to document. And you probably need, again, to take account of all of the different sources that those would be generated from.

Make a list and make sure that you've received each one of them before you start the process of filing. Oh boy, Peter, I don't. Pay one. So you're giving me anxiety just like. Yeah, there's there's a lot that goes into it. They should simplify this whole thing. I'm not the king though.

All right, well, I vote for you for king then. I appreciate it. Can you share tips for maximizing deductions and credits, especially those that people often overlook? Yeah, there are a lot that people overlook. And again, you either take this standard deduction or you itemize. And so one of the biggest differentials is I see that small business owners tend to itemize more than others because the standard deduction is so high. It's thirty thousand fifteen for an individual.

Thirty thousand for a married couple. You know, back in the day when it was much lower, we used to itemize because the mortgage interest a lot of times was more than the standard deduction. These days, that's not the case. You know, a lot of people are locked into very low, low mortgage rates. And the interest is very low on what they've paid, although it doesn't feel that way.

But a lot of times it does not amount to being more than the standard deduction. So business owners are the ones that itemize a lot. You know, a business owner has some opportunities. If you've got kids that help you out in some form or fashion of of a certain age, they can help you inside of the business. That's a potential additional advantage opportunity there. Put them on some payroll of some some sort.

Pay them a reasonable wage for what they're doing, whether it's sweeping, emptying the trash, keeping the office clean. If you've got a home office, then, of course, that's a deduction and that's a very legitimate deduction, especially post covid, more and more people were working out of their home. That is a home office like that. That is something that you can quantify the square footage of your home that you're using for office space. And then, you know, certain aspects of your home, in addition to just the square footage, are being utilized for office purposes.

You wouldn't keep the lights on in that room all day long, plus the computer going all day long unless you were doing business there. So some of those things, as well as reinvested qualified dividends, out of pocket contributions to charity state taxes. Medicare premiums can be deducted if they exceed seven point five percent of your adjusted gross income, income that was generated prior to someone having passed away in respect to a decedent. If you are a widow or widower, you utilizing the year for the married filing jointly. Like that isn't an opportunity that should not be overlooked because we do have that extra year where technically we are married filing jointly. The following year, we'll bump into a single filer status and we will lose that if you're gifting, if you're or if your parents maybe paid off some student loan for you, that technically is a gift that shouldn't be taxable income. If you've spent time searching for a job or moved more than 50 miles or had military service, like all of these are potential deductions that commonly get overlooked. How can working with a financial adviser help make tax season less stressful and more efficient?

Well, I think that there should be a relationship there. And the financial adviser knows a little bit about your situation and therefore can help you spot and identify some of these opportunities, maybe for this year, so that you're reminded not to miss them when you go to file. But more importantly, making proactive moves for the future. Like a financial adviser is not typically the one who's filing the taxes and putting the numbers in the boxes for last year. But when making financial recommendations, a financial adviser should understand the tax consequences of how different assets are purposed or placed into the future.

And hopefully makes those recommendations, keeping tax efficiency for your situation in mind. Right. A financial adviser is helping reduce taxes over a lifetime, not necessarily for the filing year. Right.

Correct. And a lot of times, actually, there's a little bit of a conflict in perspective there from the tax filer who wants to save you the most on what has already happened. They're looking back historically at last year and saying, well, you could do this or do that to save more, not only last year, but but next year, too. Whereas that taxes are a pay me now or pay me later system in many cases. And so that perspective oftentimes does oppose the perspective of a proactive adviser looking forward, trying to save you taxes into future years.

So you've got to reconcile that and just make sure that you're making the best decision in those cases for your situation. So if somebody would like to talk through any of the tax questions that we've brought up or if they just want a second look at their filing here, what's the best way to reach you? You can give me a call. Nine one nine three zero zero five eight eight six nine one nine three zero zero five eight eight six.

When we're when we're making recommendations that have tax implications, we either have CPAs or accountants that we work and consult with, or we can bring your CPA or accountant into the conversation if necessary when when that is going to be a factor and appreciate that and enjoy doing it. It's always fun to really work through the math. That's one of the things I actually really love about this job. I know.

I love that about you, too, Peter. You love solving those puzzles. Yeah. Thank you so much for your time today. I appreciate it. Yeah. Give me a call.

Nine one nine three zero zero five eight eight six. Or you can visit online. Rich on planning dot com. Thanks, Peter.

Hey, folks, Peter Roshan here with Roshan planning. So glad that you are enjoying the podcast. Planning matters radio. You know, one of the tools that we've put out there that people really seem to appreciate and really are our finding of value is at nine one nine retired dot com. It is your retirement tax bill calculator. If you've got any kind of retirement account, your tax deferred 401K or IRA, this is the Web site.

This is the resource where you can go. You can plug in your own numbers, your information. You can slide the the tool calculator up and down for your tax rate or your amount of savings and see what your tax bill is likely to be. If you default and defer to the IRS's plan versus what you could potentially bring that tax bill down to a lot of times is a very significant savings.

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