Ah, the sweet smell of fresh spring flowers and W-2s is in the air. That’s right, the 2022 tax season is upon us. For many of us, tax season can cause a great deal of anxiety and confusion. But with a little planning and organization, preparing your taxes for filing can be efficient and straightforward.
Here are a few tips for filing your 2021 tax return.
Gather Your Paperwork
The most vital part of preparing to file your taxes is gathering all of the necessary paperwork. Depending on your particular tax situation, you may end up with one or two forms or a whole stack.
These are some of the most common tax forms that people receive in order to file their tax returns.
If you work as an employee for a company that withholds taxes for you, you’ll receive a W-2. This form spells out exactly how much you made and how much was set aside for federal and state taxes. It’ll also show you how much you set aside for employer-sponsored benefits such as a 401(k) or healthcare spending account like an HSA or an FSA.
If you freelance or have a side hustle, then you’ll probably end up with a 1099 form (or possibly a handful). A 1099 form from an employer shows how much money you earned from a job or a contract, but since employers don’t typically withhold taxes for their freelance workers, a 1099 will show your gross income, before taxes.
You may receive other 1099s depending on your financial situation. One of the most common ones is a 1099-MISC, which is a catchall form for income from uncommon sources (like if you won any prize money or sold consumer goods on Etsy).
HSA and 401(k) Contributions
If you receive a W-2 and participate in your employer’s benefit programs, you’ll see amounts listed for your HSA or FSA contributions and your 401(k) contributions. Sometimes the individual institutions, like the insurance agency, will also send a copy of a 1099-SA, which shows your annual distributions to and from your HSA. If you pulled any money from your IRA, you’ll get a 1099-R.
(Speaking of contributions, did you know that you have until the tax due date (April 18 of 2022) to max out your IRA contributions for 2021?)
Tax forms usually start showing up by the end of January, so staying organized from the get-go is key to filing your tax returns. Consider collecting all of your forms in a folder as soon as you receive them to keep yourself organized.
You may notice that some organizations (typically employers) send electronic versions of their tax forms rather than paper. Depending on how your organizational brain works, keeping important paperwork in multiple places may not be the best idea and add to an already stressful situation. Consider printing any electronic tax forms and putting them in your 2021 tax form folder with your other hard copies.
There’s an additional benefit to having a hard copy of all of your tax forms in one folder (or, in the reverse, scanning all of your forms into the computer and storing them on a hard drive): It’s recommended to keep your tax forms for at least seven years, in case you need to amend your taxes for any reason. This way, you’re ahead of the game.
Use Direct Deposit
With the proliferation of direct deposit and withdrawal, it’s easier than ever to receive your tax refund or pay what you owe directly out of your bank account. Tax filing software like TurboTax and H&R Block will prompt you at the end to add your direct deposit information. If you use an accountant, you can fill out a direct deposit form that they can submit with your taxes for you.
Be Smart With Your Refund
While you may not always get a refund, it’s extremely exciting when you do. And you may already be scheming about what you’ll spend it on.
Before you get too far ahead of yourself dreaming up a big trip or window shopping for that new (to you) car, consider some of these smart money moves that can take your refund further:
Setting your refund aside in a savings account is a particularly smart move, and can help you get closer to any savings goals you may have. For example, you could spend the refund on a big trip now, or you could set it aside for bigger money moves in the future like a down payment on a house. It could also help build up an emergency fund, a necessity for financial security and peace of mind.
Allocate It Towards Debt
Again, it’s not as fun as a trip to the Caribbean, but putting your tax refund towards outstanding debt can get you this much closer to financial freedom (and actually being able to afford that trip to the Caribbean).
Start by making a list of all the debt that you owe: student loans, car payments, mortgages, credit card debt, personal loans, etc.
You can use your refund to tackle your debt in a few different ways, depending on how much debt you owe. You could put it towards the payment with the highest interest rate, like your credit card debt. Or you could throw in an extra payment or two on your mortgage to get you that much closer to owning your property outright. If you have any loans that charge a fee for paying off early, you could put the refund in its own account and set up an automatic payment plan to take a little out of it at a time, giving you a month or two of reprieve while you tackle some other financial goals.
Invest In Your Future
Another way to set yourself up for success is to put your refund into your retirement fund. Saving for retirement is a long-term goal that you’ll chip away at for several decades. And while it can feel like a slog, it’s vital for your long-term financial wellness, especially as you get older. Any additional amount you can contribute (so long as you fall within the maximum contribution limit) is setting future you up for success.
Ready to start filing your 2021 tax return? Keesler Federal Credit Union has partnered with Love My Credit Union Rewards to offer savings on tax filing software to members. File yourself with the easy-to-use TurboTax or H&R Block self-guided programs, or set up a meeting with a tax pro for extra support.