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Getting an Early Start for Your 2024 Tax Filing

June 19, 2023 by dmaccounting

Getting an Early Start for Your 2024 Tax Filing

Most people don’t think about their annual tax filing until they get their W2 in January. Those who want to maximize their refund or minimize their tax liability start the process much sooner. Ideally, the preparation for next year should begin as soon as this year’s return has been submitted. Here are the steps you can take to ensure you’re up to date. 

Step #1: Figure out your tax bracket

Individuals and couples who make more money pay a higher percentage of their income in taxes. IRS tax brackets begin at 10% and cap out at 37%. The first step in being properly prepared for next year’s tax filing is to figure out what your tax bracket is this year. The chart below shows a breakdown of what those brackets are for the 2023 tax year:

Tax BracketIndividual IncomeMarried Filing Jointly Income
10%$11,000 or less$22,000 or less
12%$11,001 to $44,725$22,001 to $89,450
22%$44,726 to $$95,375$89,451 to $190,750
24%$95,376 to $182,100$190,751 to $364,200
32%$182,101 to $231,250$364,201 to $462,500
35%$231,251 to $578,125$462,501 to $693,750
37%$578,126 or more$693,751 or more

Tax brackets are progressive, so you won’t be paying the higher percentage on all your income. For instance, if you’re single and make $40,000 a year, you’ll owe 10% on the first $11,000 and 12% on the remaining $29,000. This applies for all levels of income as your salary increases with time. You can use the chart above to calculate exactly what your liability will be.

Step #2: Estimate your current withholding

Estimate your current withholding

Don’t rely on your employer to keep track of your withholding. They’re basing you’re their numbers on a W4 form that you may have filled out years ago when you first started the job. That information, which includes your tax status and number of dependents, should be reviewed each year. Speak with your payroll administrator about doing that right now. 

Your withholding should exceed the amount of money you’ll owe in federal income taxes. You’ll know how much that is if you used the tax brackets in Step #1 to calculate your tax liability. Keep in mind that there will be deductions that could lower that liability, but don’t rely on them at this stage of the process. Assume you’ll owe the full amount. 

The IRS provides a tax withholding estimator on their website that can help you calculate what your withholding should be. If you find that you’re not putting enough aside, ask your payroll administrator to increase the amount of your withholding. They can walk you through the steps of how to do that. Your accountant can also assist you with this.  

Step #3: Review your itemized deductions

Review your itemized deductions

The IRS offers standard deductions for individuals and couples who don’t choose to itemize to lower their tax liability. In 2023, the standard deduction for single individuals or married individuals filing separately is $13,850. For married couples filing jointly, it’s $27,700. Both have gone up slightly since 2022. Use those numbers as a starting point for this step. 

Itemized deductions are often better for homeowners and individuals working as independent contractors. If a business tax return is required, you’ll need to fill out a Schedule C and Schedule SE for self-employment tax. We’ll cover that in another article. This section is strictly for personal tax returns. This is a good time of year to review your itemized deductions. 

The key to getting the most out of itemizing deductions is to organize them properly. Keeping a shoebox filled with random receipts might give you a record of everything, but it’s a nightmare for anyone preparing your taxes next year. It’s better to digitize your receipts and match them to bank or credit card transactions. There are several mobile apps that can help you with that. 

Step #4: Max out tax-deferred retirement contributions

Max out tax-deferred retirement contributions

Contributions to your 401(k) or traditional IRA are tax deferred, which means they come out of your paycheck before your tax bracket is calculated. In 2023, the IRS allows you to contribute up to $22,500 in tax deferred dollars into a 401(k) and up to $6,500 into a traditional Roth IRA. Maxing out both could cut your taxable income by $29,000. 

To put that into perspective, if you make between $100K and $150K per year and contribute the maximum to both your 401(k) and traditional IRA, you’ll lower your 2023 tax liability by almost $7,000 ($29,000 x 24% = $6960). You’ll need to pay taxes on that money when you withdraw it in retirement, but chances are your tax bracket will be much lower at that point.

Are you over 50 years old? The maximum contribution limits go up after 50 to $30,000 for 401(k) plans and $7,500 for traditional IRAs. That increases your potential tax savings to $9,000 if you’re in that same $100K-$150K salary range described above. Couples who are both contributing the maximum could double that amount.    

Step #5: Make an appointment with your CPA

Make an appointment with your CPA

We’ve tried to simplify this as much as possible to give you a DIY option to prepare for filing taxes in 2024. Now it’s time to check your work. Make an appointment with your CPA now to make sure you’re on the right track. It’s usually easier to get in this time of year and it could save you countless headaches next year when it comes time to file. 

Read our article titled “Why Should You Have a CPA Do Your Taxes?” It should clarify why we’re making this suggestion. A CPA has the experience, knowledge, and understanding of tax filings that you need to ensure you get the best refund or lowest tax bill possible. Contact our office today to learn more or to schedule an appointment today.

Filed Under: Blog, Taxes for Businesses, Taxes for Individuals

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