For most Americans, the deadline to file 2023 federal income taxes with the Internal Revenue Service (IRS) is Monday, April 15, 2024, unless extended because of a state holiday. When preparing to file federal taxes with the IRS, there are a few things to do in advance:

• Gather tax documents.
• Store documents safely and securely.
• Compare tax preparation options.

Doing these not only helps to save time when completing the forms but also helps safeguard against omitting information or making filing errors.

Do I need to file taxes?

Some taxpayers think they do not have to file taxes if they do not make a lot of money. Generally, it is rare not to file a tax return. Simply put, if your income is less than your standard deduction, you generally do not need to file a return (assuming you do not have income, such as self-employment income).

The Kiddie Tax is for taxpayers who are claimed as dependents on someone’s tax return when their earned income is more than their standard deduction or, for certain children, when their unearned income (for children up to 18 or children 19 to 23 if they are full-time students) is greater than $1,250 in 2023. Find more information about Kiddie Tax by visiting the IRS website. Note: Unearned income includes investment-type income such as taxable interest, ordinary dividends, capital gain distributions, etc.

1. Gather Tax Documents

It is wise to collect tax-related items and information throughout the year to prepare for tax season. If you plan to itemize rather than take the standard deduction, when a tax filer itemizes taxes, they can decrease their taxable income by deducting certain expenses allowed by the IRS. Though the documents needed to file taxes vary by person, there are a few documents that all filers need.

• Personal information. Social Security numbers, names, birth dates for filers and dependents
• Income earned/received.
  • W-2 forms, various 1099 investment, unemployment/SSI, or tax return income forms
  • Business: profit/loss statement, capital equipment information
  • Miscellaneous: Any other income such as scholarships, gambling winnings, medical savings accounts (MSA), and alimony received
• Income adjustments.
  • Pretax deductions paid from salary, such as IRA contributions, Health Savings Account (HSA), and alimony paid
• Deductible expenses.
  • Purchases made for a career—such as those for educators—alimony paid (after 2018, no longer included in gross income for the payee or deductible for the payer), Keogh (a tax-deferred pension plan available for the self-employed or unincorporated businesses), Simplified Employee Pension Plan (SEP), SIMPLE (small employers), and other self-employed pension plans, moving expenses, or student loan interest

Those who itemize will need to collect additional documents. Some possible itemized categories are childcare, adoption, charitable donations, disaster and loss, and medical deductions. You will also want to keep receipts for work- or school-related purchases, monetary or in-kind donations (eg., clothing, furnishing, supplies), mileage logs for miles driven for business, and medical expenses.

For a checklist of tax documents to keep on hand, see Worksheet 6. Tax Preparation and Record Keeping Log on page 25 in the 2023 WISE Money Management calendar.

2. Store Documents Safe and Securely

It is important to keep tax documents in case you are audited by the IRS. You will also need proof of income if you apply for a loan, mortgage, or college financial aid when filing the Free Application for Federal Student Aid (FAFSA). The length of time to hold documents depends on the type of documentation and the filer’s situation.

• Three years. All tax documents, especially a W-2, and proof of income should be kept a minimum of three years.
• Six years. If a tax filer underreports income, tax documents should be kept at least six years.
• Seven years. If a filer claims a loss on taxes, they should keep documents at least seven years.
• Indefinitely. Records of capital assets, major home improvements, and purchase/sale documents for assets like stock or property should be kept forever.

It is wise to keep both paper and digital copies of tax documents. Have a designated place to store physical tax records so that you can locate them easily and keep them safe from fraud or theft. Be sure the location is dry, safe, and secure. For paper copies of documents, consider purchasing a locked file cabinet or a small, compact-sized safe box at an office supply store or big-box retailer. Locking file cabinets cost between $40 and $500, and safe boxes range from $30 to $150, depending on size and features.

For Digital Files

Take photos or scans of tax documents and upload them in a single shareable document so they are always easily accessible to you. It’s also a great backup in the event that the original documents are damaged or lost. It’s important to set a password to protect the tax file from being opened or accessed by someone without your knowledge or permission. All common platforms, such as Google Drive and Microsoft, allow users to password-protect documents and files.

3. Compare Tax Preparation Options

Before filing taxes, it is good to have an idea of all of the options available to successfully file.

• File yourself using the IRS Free File.
• File yourself using online guided assistance third-party commercial tax preparer software or a website.
• Hire a commercial tax preparation firm.
• Hire a tax professional such as an accountant, financial advisor, certified public accountant (CPA), or certified financial planner (CFP).

For a list of authorized providers, search the Authorized IRS e-file Provider Locator Service on the IRS website.

Many people decide to file their own taxes, while others do not feel equipped or interested in completing their own taxes. Tax filers might consider hiring a professional if they fit into any of the following:

• Are not comfortable with financial forms
• Do not have at least 5 to 7 hours to prepare and file taxes for simple taxes or up to 20 for more complex tax situations
• Are a business owner
• Plan to itemize deductions
• Have other complex tax situation such as extensive investments, multiple properties or other assets, or perform gig or contract work.

4. When to File

Tax season officially began January 23, 2024, but taxpayers have until April 15 to file. Generally, the best time to file taxes is as soon as you have gathered all of your tax documents. For a tax document checklist, see the Preparation and Record Keeping Log on page 25 in the 2023 WISE Money Management calendar.

Filing early can also save filers money since many commercial tax preparers run promotional pricing in late December and early January to attract new or repeat clients. Taxpayers who file electronically typically receive returns more quickly. If you expect to receive a tax return, consider filing electronically and opting for direct deposit to get your return as soon as possible.

If a taxpayer fails to file the tax, the penalty will apply. For example, the amount of the penalty is 5 percent of the tax due per month, with a maximum of 25 percent.

If a taxpayer fails to pay the tax, the penalty will apply. For example, the amount of the penalty is 0.5 percent of the tax due per month, with a maximum of 25 percent.

Simply put, do not forget to file your taxes.

5. Checklist for First-Time Filers

If you are filing taxes for the first time, there are a few things that can help with filing success and make the process smoother. In addition to gathering documents in advance and comparing filing options, new filers can do the following:

• Ensure that no one else can/does file you as a dependent on their return. This is especially important for young adults or those who receive financial assistance from parents, guardians, or relatives. Even if someone else claims you on their taxes, you may be able to file a return to claim specific benefits, such as education tax credits. If you think someone else may claim you on their taxes, talk to them before you file a tax return to avoid conflicts or the need to amend a return later.
• Seek out tax deductions or tax credits for which you may be eligible. Some common tax credits and deductions include the following:
  • Child tax credit for those with qualifying children up to age 18
  • Earned income tax credit for low-to-moderate income filers
  • Lifetime learning credit for those enrolled in higher education
  • American opportunity tax credit for first-time college students during their first four years in school
  • Student loan interest for those making payments on an educational loan
  • Child and dependent care credit to claim care-related expenses
  • Saver’s credit for contributing to an individual retirement account
  • Health Savings Account for contributions made to your HSA
  • Charitable contributions for money or property donated to a qualified organization

More Information

Learn more about money management by following guidelines from the 2023 WISE Money Management calendar or by visiting www.aces.edu.