As the United States government has progressed, so has the concept of taxes.
What started as a simple tax on certain products turned into this extremely intricate system. This system is attempting to find the balance of enough funding and ensuring the countries people are happy.
That being said, when it comes time to file taxes or even to select your tax withholding code, it can seem daunting.
Have no fear!
I will go over the top tax tips for beginners.
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Understanding when, why, and how to pay taxes can be quite confusing to you if this is your first tax season.
Pay enough taxes and you’ll likely obtain a return (a refund check) at the end of the year, but don’t pay enough and you’ll owe the government money.
Basic Tax Planning Tips for Beginners
1 – Know Your Status
First, you’ll want to know the status you are filing under.
It is very important to select the correct filing status when filing your individual tax return.
Many tax credits, deductions, and the amount of taxes paid are dependent upon the filing status selected. At times, more than one filing status may apply to you.
The 5 Filing Statuses:
- Married Filing Jointly
- Married Filing Separately
- Head of Household
- Qualifying Widow(er) with dependent child
However, if you find you’ve incorrectly stated something on your filing there are ways to fix and update your information.
2 – Always Select the Correct Withholding
If you are working for an employer, then you have completed the tax withholding form W-4. This form tells you how much taxes are being withheld from your paycheck.
The goal here is to find the delicate balance between putting aside enough taxes, but not giving too much of your hard-earned money to the government.
By withholding too much, it’s like you are giving an “interest free loan” to the government. However, if you do not withhold enough, you will have a tax bill at the end of the year.
There are various forms needed, but don’t worry, you can go through the full Tax Planning Guide here!
If you need to adjust your withholding, it can be done at any time, so no need to get it exactly right on the first go.
Get Your Simple Tax Planning Guide Below
3 – Take Advantage of Tax Deductions
Lastly, you’ll want to ensure you are taking advantages of the various deductions out there that are applicable.
A tax deduction works by totaling your deductions and subtracting them from your adjusted gross income or AGI; therefore, reducing your tax bill for the year.
Tax deduction is commonly a result of expenses, particularly those incurred to produce additional income.
The IRS lets you decide whether you want to claim the standard deduction or itemize your deductions.
What is a Standard Deduction?
The standard deduction is a fixed amount set by the IRS that reduces your adjusted gross income. However, it is based on your filing status, which is determined by your marital status as of the end of the year.
For tax year 2022, the standard deduction amounts are as follows:
|2022 Standard Deduction and Personal Exemption (Estimate)|
|Filing Status||Deduction Amount|
|Married Filing Jointly||$25,900.00|
|Head of Household||$19,400.00|
|Married Filing Separately||$12,950.00|
What is an Itemized Deduction?
An itemized deduction is an eligible expense that you can claim on your federal income tax return that may decrease your taxable income.
If your total itemized deductions exceed the amount of your standard.
Common Types of Itemized Deductions:
- Mortgage Interest
- Property Taxes
- Charitable Donations (donating to Goodwill, tithing at church, giving money to non-profit organization, etc.)
- Medical Expenses
Get Your Full List of Tax Deductions Here!
4 – Put Money Aside
You should save a few bucks at the end of the year just in case you do owe taxes.
Sometimes we may not adjust our tax-withholdings correctly on our paycheck, so it’s always good to put a little money to the side.
5 – Hire a Tax Preparer
Online tax software can be simplistic and doesn’t always apply to your individual needs that may change from year to year.
Don’t get me wrong, online tax software can be an excellent choice for a SIMPLE tax return, but not necessarily the best choice for a more detailed tax return.
A tax advisor or CPA (Certified Public Accountant) are experts in their field and will know how to deal with your specific situation, ensuring that you come out on the best end for your financial situation related to taxes.
Read: Tax Software vs. Tax Pro or Accountant: Which Should You Use?
6 – Know What Role Your Spouse Plays
A spouse is never considered the dependent of the other spouse. This is one of the tax tips that many people are confused on.
7 – Know What Happens for Divorce
Taxpayers who are divorced or legally separated at the end of the tax year cannot claim their (former) spouse
If you decide to file separately, you and your spouse must report income and deductions on separate returns even if one spouse had no income.
Read: Divorce and Taxes: Everything You Need to Know for Filing Taxes
8 – Know if Your Dependent has to File Taxes
Your dependent may have to file if they are earning an income or if they are having taxes withheld for some reason.
You’ll want them to file separately, but if they’re too young, you’ll be responsible for filing one for them.
9 – Know When to Choose Standard Deduction vs. Itemized Deduction
If your total itemized deductions exceed the amount of your standard deduction, then go with the itemized deduction option.
Remember that the standard deduction is a fixed amount based on your filing status
10 – Know the Income Tax Bracket for 2023
Due to inflation, there are higher tax brackets. Here is a look at the tax brackets for the 2023 filing year.
2023 Tax Bracket for those filing with single status:
- 10% tax bracket for income of $11,000 or less
- 12% tax bracket for income of more than $11,001 and no more than $44,725
- 22% tax bracket for income of more than $44,726 and no more than $95,375
- 24% tax bracket for income of more than $95,376 and no more than $182,100
- 32% tax bracket for income of more than $182,101 and no more than $231,250
- 35% tax bracket for income of more than $231,151 and no more than $578,125
- 37% tax bracket for income of more than $578,126
2023 Tax Bracket for those married and filing jointly:
- 10% tax bracket for income of $20,000 or less
- 12% tax bracket for income of more than $22,001 and no more than $89,450
- 22% tax bracket for income of more than $89,451 and no more than $190,750
- 24% tax bracket for income of more than $190,751 and no more than $364,200
- 32% tax bracket for income of more than $364,201 and no more than $462,500
- 35% tax bracket for income of more than $462,501 and no more than $693,750
- 37% tax bracket for income of more than $693,751
11 – Donate to Charity
Donating to charity is not only a good way to give back, but it also allows you to get some great tax deduction benefits on your return. Especially, if you plan on using the itemized deduction method.
To be considered a charitable deductible, you will have to make your contributions to qualified organizations and not individuals.
This is one of the best tax tips for lowering your bill.
Final Thoughts on Tax Tips
Taxes can seem intimidating but they certainly don’t have to be. Once you have a basic working knowledge of the common tax terms and information, you’ll be able to make a plan.
First, you’ll want to understand how you are filing. From there, ensure you are withholding just enough of your hard-earned money.
Lastly, ensure you are taking advantage of the deductions available to you because if not, you are leaving ‘free’ money on the table.
If you ever have questions, you can reach out to your Accountant or Tax Advisor and they’ll be able to direct you in the right direction.
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If you enjoyed this article, then you’ll love these:
- Best Rules for Claiming a Dependent on Your Tax Return
- When and How to Claim Tips on Your Tax Return
- Do I Need to File a Tax Return?
- How to Choose the Best Filing Status
- Why a Tax Checklist Will Make Your Life Easier
Get started on your taxes early here!
Until the next money adventure, take care!
Disclosure Statement: All data and information provided on this site is for informational purposes only. The Handy Tax Guy makes no absolute representation to the correctness, mistakes, omissions, delays, appropriateness, or legitimacy of any information on this site.
(Original Article Date: February 4, 2019/Updated December 8, 2022)