Iowa tax planning

How to Help Prepare for Tax Season in 2023

Preparing for tax season can be overwhelming, but it doesn’t have to be. With a little planning and organization, you can make the process as smooth as possible. Here are some tips to help you prepare for tax season in 2023.

It’s the beginning of the new year, and you might be feeling a little overwhelmed by all of the things that need to get done–including filing your taxes. But don’t worry—we’ve got you covered! We’re going to take a look at how you can help prepare for your income tax return for 2022. Here’s what you need to know.

Iowa Filing Requirements

You are required to file an Iowa return if you were a resident or part year resident of Iowa for the tax year and meet any of the following requirements:

  • Under 65 and Single
  • Iowa net income at least $9,000
  • Under 65 and filing status is other than Single 
  • Iowa net income at least $13,500
  • Age 65 or older and Single
  • Net Iowa income is at least $24,000
  • Age 65 or older and filing status is other than Single 
  • Net Iowa income is at least $32,000

If you’re married, your filing status is usually the same on the Iowa return as it was on your federal return. However, married taxpayers have the option of either filing jointly, married filing separately on a combined return, or married filing separate returns on the Iowa return, no matter how they filed on the federal return.

Lastly, Iowa has a reciprocal agreement with Illinois. Which means that wages and salaries are taxed by the individual’s state of residence. Now that we know a little more about Iowa’s requirements, we can dive into topics that require more preparation.

  • Check your Paycheck for Tax Withholding 

Have you ever wondered why your employer withholds money from your paycheck?

It’s because the US has a “pay as you go” model of income tax, which means that people who earn money have to pay taxes on it throughout the year. If you don’t pay enough in estimated taxes during the year, you may be subject to penalties at tax time.

Your employer determines how much money is withheld from your paycheck by your W-4 tax form. This includes information about your filing status and estimated deductions. The end of the year is a great time to review your W-4 form and current withholding to decide if you want to change it.

The IRS’ Tax Withholding Estimator tool lets you estimate your current withholding and projected tax refund in order to adjust your W-4 form. You can submit an updated W-4 form to your company at any time, and your employer must institute your changes by the start of the first payroll period that’s 30 days or longer after your W-4 submission.

  • Max Out 401K Contributions

If you’re planning to make a big push toward retirement saving this year, then we have some good news for you.

Retirement funds like 401(k) accounts and IRAs provide one of the most productive tax deductions because you can help reduce your tax bill while building a nest egg for the future. If you can afford it, max out your possible contributions to any retirement account before the end of the year.

The deduction limit for 401(k) contributions for 2022 taxes is $20,500, and that does not count employer contributions. A worker in the 24% tax bracket could knock almost $5,000 off their tax bill just by saving money for the future. Increase the percentage of your regular 401(k) contribution for the last pay periods of 2022 to make the most of your retirement deductions.

Finally, If you’re over 50, you can contribute more to your 401(k) with “catch up” contributions totaling $6,500 per year (or $27,000 total) in 2022, if allowed by your 401(k) plan. 

  • Complete Your Charitable Contributions

The deadline to make Charitable contributions is Dec. 31st and even though this has passed, it’s best to check with your fiduciary advisor to see if you can add your contributions for your taxes this year. Most taxpayers can generally deduct charitable donations up to 50% of their taxable income. The best way to complete this is by itemizing your tax deductions. 

Before donating to anyone, make sure that your contribution will be tax deductible by searching the IRS’ tax-exempt organization database. All valid charities and non-profits will also have a tax identification number that identifies them as tax-exempt.

  • Combine Medical Expenses

Medical Expenses are a great way for taxpayers to get a big deduction. However, the IRS has a rule that limits how much you can deduct from your taxable income. If your AGI is $50,000, and you spend $5,000 on medical expenses, you can only deduct $1,250  from your taxable income.

If you’re nearing that limit this year and have major medical expenses coming up—like surgeries or prescriptions—make sure to schedule them by December 31st of 2022 so they count toward this year’s deduction rather than next year’s. 

  • Check Your Required RMDs 

US tax law requires Americans to receive distributions when they reach 72. If you don’t, the IRS will hit you with a nasty 50% penalty. Required minimum distributions, or RMDs are calculated based on how much money is in your retirement accounts. 

For example, if you’re required to withdraw $20,000 but only received $10,000 you will have to pay a $5,000 penalty. It is absolutely essential to check your RMD to make sure you’re getting the money you need while helping to avoid any penalties.

RMDs are withdrawals that the IRS requires seniors to take from most types of retirement accounts. Beginning Jan. 1, 2023, the starting age will rise from 72 to 73. The Secure 2.0 Act will eventually increase RMD age to 75 in 2033.

Final Thoughts

While the tax season list can continue on, it’s important to know preparing for the upcoming tax season doesn’t have to be hard. As Iowans, we work hard to help ensure our families are enjoying a lifestyle with moderate measures. By following these tips, you can help prepare for tax season in 2023 with confidence. Don’t wait until the last minute – start preparing now and make the process as smooth as possible.

At Johnson Wealth and Income Management, we will sit down and work with you to help ensure that you and your family feel comfortable and are taken care of. As Fiduciary advisors, we strive to help our clients achieve their goals. That is why we offer an array of services, including investing, wealth management and tax preparation.

If you’re ready to get a head start on your tax planning for 2023, contact us today.

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