(888) 913-9745 Need Assistance With Your Tax Issues Quickly?

Here you can edit the background of the section

Powell Tax Law Blog

4 min read
businessman preparing a checklist

Making a List and Checking it Twice: Your End-of-Year Income Tax Checklist

The holiday season comes earlier and earlier as stores start to deck their halls before the kids have even gone trick-or-treating and somewhere someone is already streaming Mariah Carey’s “All I Want for Christmas is You”!

As sure as that song will get stuck in your head and hit No. 1 on the Billboard Hot 100 Songs for a fifth consecutive year, there is another constant in life just around the corner: IRS tax season, and now is the time to prepare to file your federal income taxes.

“Organized tax records make preparing a complete and accurate tax return easier. It helps you avoid errors that lead to delays that slow your refund and may also help you find overlooked deductions or credits,” says the IRS.

So, while the upcoming holiday season is all about making a list and checking it twice, taxpayers should not only be thinking about “who has been naughty or nice”, but also preparing an end-of-the-year income tax checklist so in April they avoid financial thin ice.

“Using a tax prep checklist can help reduce your tax-time stress,” says NerdWallet.

15 Things to Put on Your End-of-Year Tax Checklist

Taxes are a constant in life, and while it's important to practice year-round tax planning, the end of the year is a crucial time to ensure that you're well-prepared for the upcoming tax season.

As November approaches, it's the perfect moment to start your end-of-year income tax checklist, safeguarding yourself from any unpleasant surprises when the IRS comes knocking.

Here are 15 key items that should be on your end-of-year income tax checklist to help you maximize your tax efficiency and minimize your stress:

  1. Review Filing Status
    • Assess changes in your marital status during the year. Marriage, divorce, or becoming a widow or widower can significantly impact your tax liability.

    • Choose the most favorable filing status for your situation. Generally, married individuals may benefit from filing jointly, while some circumstances favor filing as "head of household" or "married filing separately."
  1. Decide on Itemized or Standard Deduction
    • Examine your potential itemized deductions, including mortgage interest, state and local taxes, charitable donations, and medical expenses.

    • Compare your itemized deductions with the standard deduction for your filing status to determine which option provides the greatest tax benefit.
  1. Examine Medical Expenses
    • Calculate your total medical expenses, including health insurance premiums, prescription costs, and out-of-pocket expenses.

    • Determine whether "bunching" medical expenses in a single year, where possible, will help you meet the threshold for itemizing deductions (exceeding 7.5 percent of your adjusted gross income).
  1. Review Retirement Contributions and Distributions
    • Maximize your contributions to tax-advantaged retirement accounts, such as 401(k)s, IRAs, and HSAs, to reduce your taxable income.

    • Consider whether it's appropriate to make required minimum distributions from retirement accounts to avoid penalties and future taxable income.
  1. Look Ahead to Next Year's Tax Bracket
    • Understand the tax brackets and rates applicable for the upcoming year.

    • Adjust your withholding, estimated tax payments, or retirement contributions to match your anticipated income and tax bracket for the following year.
  1. Consider the Alternative Minimum Tax (AMT)
    • Learn about the Alternative Minimum Tax (AMT) and calculate whether you are at risk of triggering it.

    • Evaluate strategies to minimize your AMT exposure, such as careful planning of deductions and tax credits.
  1. Special Considerations for Small Business Owners
    • Review your business's financial performance and decide on year-end bonuses, deductions, and tax credits.

    • Consider making business-related purchases or investments before the year-end to reduce taxable income.
  1. Special Considerations for Independent Contractors, Freelancers, and Gig Economy Workers
    • Maintain detailed records of all income and expenses related to your self-employment work.

    • Ensure you're setting aside enough for self-employment taxes (Social Security and Medicare), which are typically not withheld by an employer.
  1. Charitable Donations
    • Make charitable donations to eligible organizations and retain proper documentation, including receipts and acknowledgment letters.

    • Consider donating appreciated assets, such as stocks or real estate, to maximize your charitable deduction and potentially reduce capital gains tax.
  1. Asset Review and Loss Harvesting
    • Review your investment portfolio to identify capital gains and losses.

    • Strategically sell assets with losses to offset capital gains, reducing your overall tax liability. Be mindful of the wash-sale rule, which restricts buying the same or a substantially identical asset within 30 days of selling it at a loss.
  1. Capital Gains and Losses
    • Examine your investment portfolio for capital gains and losses. Identify any potential tax consequences related to the sale of assets.

    • Plan strategically by considering whether to realize capital gains or losses before year-end, depending on your overall financial situation and tax bracket.
  1. Education Expenses
    • Review any education-related expenses, such as tuition, fees, and student loan interest paid during the year.

    • Determine if you are eligible for education-related tax credits or deductions, like the American Opportunity Credit or the Lifetime Learning Credit.
  1. Homeownership Considerations
    • If you own a home, review potential tax benefits like the mortgage interest deduction and property tax deductions.

    • Consider any home improvements or energy-efficient upgrades that may qualify for residential energy tax credits.
  1. Charitable Giving Strategies
    • Plan your charitable giving strategies for the year-end. This might include setting up a donor-advised fund for future giving, maximizing charitable contributions, or exploring strategies like qualified charitable distributions (QCDs) from retirement accounts.
  1. State and Local Tax Considerations
    • Be aware of your state and local tax obligations, which can vary widely. Review the tax laws in your specific jurisdiction to ensure compliance and maximize available deductions or credits.

Proactive tax planning is the key to a smoother tax season and more money in your pocket.

By putting these 15 items at the top of your end-of-year income tax checklist, you can not only minimize your tax liability, but you can enjoy the holiday cheer with a lot less stress.

Remember, it's never too early to start preparing for tax season, and with the right strategies in place, you can make sure your finances are in excellent shape.

When your end-of-the-year income tax list includes red flags that may signal IRS legal problems such as garnished wages, back taxes owed, missing filings from previous years, or a looming IRS audit, the tax attorneys at Powell Law are here to help you. Set up a free consultation today.