Navigating Tax Season

Gather Your Documents Early

File Early

Maximize Deductions and Credits

• Home-Related Deductions – Texas homeowners can deduct mortgage interest and property taxes on their federal tax returns. These deductions can be substantial, especially in the early years of a mortgage when interest payments are highest.
• Charitable Contributions – Donations to qualified charities are deductible. Keep records of all your donations, including cash and non-cash items.
• Education Credits – If you or your dependents are students, you might be eligible for education credits like the American Opportunity Tax Credit or the Lifetime Learning Credit. These credits can provide significant savings on higher education expenses.
• Energy Efficiency Credits – If you've made any energy-efficient improvements to your home, such as installing solar panels or energy-efficient windows, you may be eligible for certain federal tax credits.
• Child and Dependent Care Credit – This credit can offset some of the costs associated with childcare or adult care necessary for work for those with children or dependent adults.
• Retirement Contributions – Contributions to IRAs and specific other retirement plans may be deductible. Texas Bay Credit Union can help you understand how retirement contributions affect your taxable income.
• Educational Expenses – Deductions related to education may include student loan interest, tuition and fees, and education-related expenses for teachers, such as classroom supplies.
• Moving Expenses – While the deduction for most job-related moving expenses was eliminated after 2017, it may still apply in certain situations.
• Self-Employed Expenses – Self-employed individuals can deduct business-related expenses, including business travel, office supplies, home office (a portion of mortgage/rent), and health insurance premiums.
• Health Savings Account (HSA) Contributions – Contributions to an HSA may be deductible, and withdrawals for qualified medical expenses are tax-free.
• Medical and Dental Expenses – Taxpayers who itemize may be able to deduct medical and dental expenses that exceed a certain percentage of their adjusted gross income. This includes travel to and from medical appointments.
• Retirement Contributions – Planning for retirement is not only a wise financial move but can also provide significant tax advantages. Understanding how retirement contributions affect your taxes can lead to substantial savings for Texas residents.
  • 401(k) and Traditional IRA Contributions – Contributions to traditional 401(k)s and IRAs can be made pre-tax, meaning they reduce your taxable income. This can lower your tax bill in the year you contribute. For example, if you contribute $5,000 to a traditional IRA and are in the 22% tax bracket, you could reduce your tax bill by $1,100.
  • Roth IRAs – While contributions to Roth accounts are made with after-tax dollars and don't provide an immediate tax deduction, they offer a long-term benefit. The withdrawals you make during retirement from these accounts are tax-free, including the earnings, provided certain conditions are met. This can be particularly advantageous if you expect to be in a higher tax bracket in retirement.
  • Employer Match Programs – If your employer offers a 401(k) match, ensure you contribute enough to get the entire match. This is essentially free money and can significantly boost your retirement savings.
  • Catch-Up Contributions – For those aged 50 and above, the IRS allows additional catch-up contributions to 401(k)s and IRAs. These contributions can help you save more if you're nearing retirement and want to boost your retirement funds.

File Electronically and Opt for Direct Deposit

Seek Professional Advice if Needed

Beware of Tax Scams

• Phishing Emails and Calls – Be cautious of unsolicited emails or calls claiming to be from the IRS or other tax authorities. Remember, these agencies never initiate contact with taxpayers via email, social media, or text messages to request personal or financial information. Always verify the authenticity of such communications before responding.
• Fake Tax Preparers – Be wary of tax preparers who promise unusually high refunds or who charge fees based on a percentage of the refund. Choose a reputable tax professional.
• Identity Theft – Scammers may try to steal your identity to file fraudulent tax returns in your name. Protect your social security number and personal information. Regularly review your credit report for any unusual activity.
• IRS Impersonation – Scammers might call you impersonating IRS officials, demanding immediate payment, or threatening legal action. Know that the IRS will first mail a bill to any taxpayer who owes taxes and will never demand immediate payment or threaten to bring in local police or other law-enforcement groups.
• Refund Theft – Be alert for signs of refund theft. If your refund is delayed or you receive a notice from the IRS about a duplicate return, contact the IRS immediately.

You Got a Refund – Now What? Making the Most of Your Refund

• Emergency Fund – If you don't already have an emergency fund, consider using your tax refund to establish one. Aim for three to six months' worth of living expenses in a readily accessible account.
• Pay off Debt – Use your refund to pay down high-interest debts, such as credit card balances. Reducing debt can improve your overall financial health and save you money on interest payments.
• Invest for the Future – Consider investing your refund in long-term savings or retirement accounts. Contributing to a retirement account or investment portfolio can help your money grow over time.
• Education Savings – If you have children, consider contributing to a 529 plan for their education. These plans offer tax advantages for saving for educational expenses.
• Home Improvements – Invest in home improvements that can enhance the value of your property or make it more energy-efficient. This can be a good way to use your refund to improve your living space.
• Health Savings – If you have a Health Savings Account (HSA) or Flexible Spending Account (FSA), use your refund to contribute to these accounts. This can help cover future medical expenses.
• Start a Side Business – Invest your refund in starting a small side business or pursuing a passion project. This could potentially generate additional income in the future.
• Charitable Contributions – Consider donating to a charitable organization. Not only does this support a good cause, but it may also provide a deduction on your next year's taxes.
• Education and Skills Development – Invest in your own education or skills development. This could include taking a course, attending workshops, or purchasing books and materials to enhance your professional skills.
• Save for Specific Goals – Identify specific financial goals, such as a down payment on a home, a vacation, or a major purchase. Allocate your refund towards achieving these goals.
• Treat Yourself Responsibly – While it's okay to use a portion of your refund for something enjoyable, like a vacation or a special purchase, try to strike a balance between rewarding yourself and making financially responsible choices.

Plan for Next Year