It may seem like you were just gathering documents, extending your return, and wrapping
everything up a few months ago (you were), and here we are again. Tax season is right around the
corner and Uncle Sam wants another piece of your financial pie. Hopefully, this comprehensive
guide to tax preparation will help you wrap up your tax filing earlier, or at least help you get better
organized.
Filing Status
It is important to understand your tax filing status because your tax filing requirements, as well as
your eligibility for specific deductions and credits, may vary based on your filing status.
All taxpayers fall under five main filing statuses with the IRS:
- Single
- Head of household
- Married filing jointly
- Married filing separately
- Qualifying widow/widower with dependent child
Standard Deductions
A Standard deduction is a fixed dollar amount that taxpayers can subtract from their taxable
income, reducing their taxable income on the federal level. This fixed dollar amount changes each
year to adjust for inflation. For the 2024 tax period, the deductions are as follows:
| Filing status | 2024 standard deduction |
| Single; Married filing separately | $14,600 |
| Married filing jointly; Surviving spouse | $29,200 |
| Head of household | $21,900 |
Taxpayers aged 65 and older and blind taxpayers may receive an additional deduction. For the 2024
tax period, the standard deduction for those that are blind and/or 65+ are as follows:
Single or head of household
| 65 and older or blind | + $1,950 |
| 65 and older and blind | + $3,900 |
Married filing jointly or separately and surviving spouse
| 65 and older or blind | + $1,550 (per qualifying individual). |
| 65 and older and blind | + $3,100 (per qualifying individual). |
Itemized Deductions
Rather than using standardized deductions, taxpayers can use itemized deductions, where
taxpayers list individual deductible expenses such as mortgage interest, medical expenses, or
charitable contributions.
Which is right for me?
Some people choose the standard deduction because it simplifies the tax filing process and may
even result in a larger deduction than itemizing. However, that is not always the case. Additionally,
not everyone is allowed to take the standard deduction. According to the IRS, you cannot take the
standard deduction if:
- You are married filing separately whose spouse itemizes deductions.
- You are an individual who files a tax return for a period of less than 12 months because of a
change in your annual accounting period. - You were a nonresident alien or a dual-status alien during the year. However, nonresident
aliens who are married to a U.S. citizen or resident alien at the end of the year and who
choose to be treated as U.S. residents for tax purposes can take the standard deduction. - You are filing as an estate or trust, common trust fund, or partnership.
It may be in your best interest to itemize when your allowable itemized deductions exceed the
standard deduction related to your filing status. Schedule A (Form 1040) is used when itemizing. If
you are not certain which option is best for you, seek guidance from your tax advisor or CPA.
Name and Address
This may sound obvious but remember to update your name and address if you have recently
moved, changed your name, or gotten married/divorced. It may be beneficial for tax purposes to
change your filing status once married. Please consult your CPA or Tax Advisor to see if this would
make sense for you.
Tax Documents
Here is a list of documents you may need when you file:
- A copy of last year’s tax return: Having a copy of your previous tax return can help you recall
the deductions and credits you claimed last year and ensure you gather the necessary
information to file your 2024 return. - W-2 forms: These forms outline the income you earned from employment during the most
recent tax year. If you were employed full- or part-time, your employer typically sends a W-2
by the end of January. - 1099 forms: If you were self-employed, your clients will send you individual 1099 forms
showing how much they paid you. If you didn’t pay quarterly estimated taxes on your self employment income, you’ll need to settle those taxes when filing in April. - Form 1098: For homeowners, this form provides details about the mortgage interest paid
throughout the year. - Form 1099-DIV: This form reports income from dividends or distributions from investments.
If you earn profits from stocks, bonds, rental properties, or other investments, expect to
receive this form. - Form 1098-E: This student loan interest statement includes the total student loan interest
you paid during the year. - Form 5498: This form reports the total contributions you’ve made to an individual
retirement account (IRA) during the year. The financial institution managing your account
will send you Form 5498 at the end of the tax year or in January of the following year.
Depending on your income, your contributions may qualify as a tax deduction, provided
they fall within IRS limits. You can contribute up $7,000 ($8,000 if 50+ years old) per year
and have up until the filing deadline in April to do so. This means you would be able to
contribute up until April 15th, 2025, and have it count towards your 2024 contributions. - Form 1095-A: This form, also known as the Health Insurance Marketplace Statement,
provides details for individuals enrolled in a qualified health plan. It helps determine
eligibility for the premium tax credit, which can reduce healthcare costs, or allows for the
reconciliation of advance credit payments on your tax return. - Letter 6419: This letter outlines the total amount of advance child tax credits you or your
household received. It ensures accurate claiming of any remaining credit on your tax return.
The credit is available for individuals with a child or dependent under the age of 17. - Business Expense Records: If you’re self-employed or own a small business, it’s essential to
maintain receipts and credit card statements to track expenses accurately. Many
bookkeeping software programs allow you to export transaction data for filing purposes.
Alternatively, you can download monthly business credit card statements or compile a
spreadsheet of annual expenses. Keeping detailed records helps maximize deductions and
may reduce your overall tax liability.
Withholdings
For employees in traditional W-2 jobs, employers require the completion of a W-4 form each
January. This form determines how much tax to deduct from your paycheck, factoring in your filing
status, the number of dependents, and any additional income or deductions you report.
If you received a large tax refund last year without significant changes to your financial situation, it
might indicate that you’re having too much tax withheld from your paycheck. Conversely, if you
owed taxes, it may suggest that your withholding amount is too low.
Safe Harbor
The safe harbor rule for taxes refers to provisions that help taxpayers avoid penalties for
underpayment of estimated taxes. This is particularly relevant for individuals, self-employed
workers, and businesses who do not have taxes automatically withheld from their income. To
qualify for safe harbor, confirm that you have met specific payment thresholds. Please consult your
tax advisor or CPA to see if you qualify.
Here are the key conditions for safe harbor:
- Paying a percentage of the current year’s tax liability: If you pay at least 90% of the total
taxes you owe for the current tax year through withholding or estimated payments, you
generally qualify for safe harbor. - Paying a percentage of the previous year’s tax liability: If your payments cover 100% of your
prior year’s tax liability (or 110% if your adjusted gross income exceeds $150,000), you can
avoid penalties, regardless of your current year’s tax liability. - Owing less than $1,000 in taxes after withholding and estimated payments: If your total tax
owed is below this amount, you won’t face penalties.
The safe harbor rule is designed to give taxpayers clarity and flexibility, so they can avoid being
penalized for honest underpayment as long as they’ve followed these guidelines.
DIY or CPA?
Do I need an accountant, or can I do it myself?
That depends. For those with a relatively straightforward financial situation, it is likely that filing
online through TurboTax or H&R Block would be sufficient. If you have a more complex situation or
own a business, you may find great value in using a professional to file your tax return. If you believe
this describes you, reach out to a Nepsis tax professional and receive the guidance you need.
Advisory Services offered through Nepsis, Inc., an SEC Registered Investment Advisor.
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