Are you one of the responsible individuals who have their taxes done by February every year, or are you a chronic procrastinator who’s left scrambling right up until the April deadline? Either way, here are some smart tools and little-known methods that will help you maximize your refund and minimize your amount due. When tax time rolls around, you’ll be glad that you used some of these clever return tips.
Check Your Filing Status
This may seem like a no-brainer, but selecting the correct filing status can greatly increase the possibility of a refund. Your filing status determines your deductions, the credits you are eligible to receive, and the amount of tax you pay or the refund you receive.
Did you know that there are circumstances where married couples filing separately can save on their income taxes? This is frequently the case when both spouses earn approximately the same amount. When you compare your tax due under both “joint” and “separate” filing statuses, you may learn that combining your earnings boosted you up into a higher tax bracket. Not good. An accountant or online tax program such as TurboTax can help you determine which status is best for your needs.
Invest In Tax Planning
Tax planning is one of the best ways to take advantage of all the deductions you’re eligible for and get the maximum tax refund possible. It usually begins in January and accounts for your projected earnings and expenditures.
This allows you to analyze possible changes that could lead to a lower tax bill. While there might be an up-front cost, it’s a worthwhile investment and will most likely pay off when your tax return arrives.
Pay Your Mortgage Early
The holiday season can be busy and expensive and taking care of all the bills may be the last thing you feel like doing during that time of year. But if you are able to pay one expense early, make it your mortgage.
Taxpayers who are able to pay their January mortgage bill before December 31st can receive the added interest on their mortgage interest deduction. This is just another way to get a larger refund. Put it on the calendar!
Don’t Forget About Professional Expenses
Did you know that you can deduct for job-related expenses that you paid for out of pocket? A few eligible professional expenses include medical examinations required by an employer, depreciation on a computer your employer requires you to use in your work, and tools and supplies used in your work.
TurboTax offers this clarification of work-related deductions: “Your total itemized deductions must exceed the standard deduction. You must also meet what’s called ‘the 2% floor.’ That is, the total of the expenses you deduct must be greater than 2% of your adjusted gross income, and you can deduct only the expenses over that amount.”
Start A Home Business Or Work Remotely
Have you ever dreamed of working for yourself, from the comfort of home? If you’ve been considering starting a business, now might be the time to do it. Your business equipment, utilities, and other expenses are often deductible.
Working remotely has become more common and accepted by employers in recent years. In fact, Remote.co reported that hiring managers expect up to 38% of their full-time workers to be working remotely in the next 10 years.
Open An IRA
We’re not about to lecture you for not saving enough for retirement, but did you know that you have until April 15th to open a traditional IRA for the previous tax year? This allows you to claim the credit on your current return (you must file early for this to work, though!) and you can then use the refund to open the account.
Additionally, if you contributed to a Roth IRA last year, you might be able to claim the retirement savings contribution credit which will lower your taxable income and result in a larger refund check. TurboTax offers a handy IRA tax calculator on its website.
Claim The Earned Income Tax Credit
Those earning a moderate to low income may be able to receive the earned income tax credit, which decreases the amount of taxes owed and may also qualify eligible people for a refund. It’s particularly helpful to those with children.
The eligibility requirements are pretty straight-forward and include not being a claimed dependent of another person. More detailed information about eligibility requirements can be found on the IRS.gov website.
Take Advantage Of All Of Your Resources
Many colleges and universities provide free tax assistance for students, a service some might not be aware of. The elderly and other qualified people can also receive assistance. Additionally, the IRS outlines details of a tax assistance program on its website:
“The Volunteer Income Tax Assistance (VITA) program offers free tax help to people who generally make $55,000 or less, persons with disabilities and limited English speaking taxpayers who need assistance in preparing their own tax returns.”
Stay Up To Date On Current Tax Laws
Changes in tax laws can bring tax deductions if you know where to look. Try asking a tax professional, or using TurboTax’s software, which offers a yearly update listing all new tax deductions and credit opportunities.
A recent update eliminated the personal exemption. This might sound like a bad thing at first, but parents with multiple children to support will be happy to learn that the child tax credit was increased.
Don’t Forget to Donate
Charitable donations help others, make you feel good, and can also offer substantial tax savings. There is a caveat to keep in mind, however. Charities must be nonprofits that can prove 501(c)(3) tax status in order to qualify you for a tax deduction.
Fortunately, most charities state their tax status right on their websites, making it easy for you to determine whether or not to donate. Keep up with your receipts throughout the year, because those donations can really add up!
Factor In Your Home Improvements
Taxpayers who improve energy efficiency in their homes through upgrades, or those or make use of renewable energy, may be eligible for tax credits that can help offset some of the costs. The federal government currently offers two such credits: the Residential Energy Efficiency Property Credit and the Nonbusiness Energy Property Credit.
According to TurboTax, “you can claim a tax credit for 10% of the cost of qualified energy efficiency improvements and 100% of residential energy property costs.” There are limits to these benefits, however. “This credit is worth a maximum of $500 for all years combined, from 2006 to the present.”
File For Free
Don’t pay for something if you don’t have to! Every dollar counts. Anyone with a household income of less than $58,000 is eligible to use the IRS tax filing software at absolutely no cost.
You can also check out the Free File Alliance, a nonprofit coalition of industry-leading tax software companies. Free File Alliance is partnered with the IRS to help taxpayers e-file for free. US News also suggests using the MyFreeTaxes initiative and Military OneSource.
To Itemize, Or Not?
The general rule is that you should itemize deductions when that results in a lower taxable income than with the standard deduction. According to TurboTax, one out of every four taxpayers finds that itemizing leads to a lower tax bill.
There are a few situations where itemizing deductions is nearly universally recommended, such as if you have substantial medical bills or have made large donations to charity. Keep in mind that when spouses file jointly, if one of them itemizes deductions their spouse must also itemize.
Claim Anyone You’ve Been Supporting
If you have been supporting your friend, significant other or relative, you might be eligible to get a dependent exemption of $4,000 deducted from your income. You’re eligible if your non-relative meets a few requirements.
They must have lived with you for the entire year (relatives don’t need to live with you) if they don’t provide more than half of his or her own support, and they don’t earn over $4,000 in taxable income. There are further rules, so be sure to check into this when filing.
Do Not Overlook Student Deductions
If you are currently attending and paying for college, you are eligible for certain deductions when filing your tax return. Programs such as The American Opportunity Credit and the Lifetime Learning Credit further boost your odds of getting a nice tax break for your student expenses.
Look into all the education tax credits, as well as the earned income tax credit. Educational deductions can save thousands of dollars on your return.
Claim Every Deduction You’re Eligible For
Be sure to thoroughly review every available deduction when you’re completing your taxes. TurboTax says that people claimed $1.2 trillion dollars’ worth of tax deductions last year, so be sure you’re getting your fair share.
The personal finance company Kiplinger has a handy list of the top 25 tax deductions that are overlooked every year. These often-forgotten deductions include state sales taxes, student loan interest, health insurance premiums for the self-employed, moving expenses, child care credits, and more.
Increase Your Withholding For A Bigger Refund
When you started working for your current employer, you completed an IRS W-4 tax form. This form dictates just how much money is withheld from each paycheck, to be applied toward your personal income taxes. The amount withheld is inversely based on how many exemptions you claim: more exemptions equal less money being withheld. You can claim exemptions for yourself, your spouse, and any dependent children or other qualifying relatives.
If you prefer receiving a larger lump sum tax refund in the spring, you can visit your company’s HR office to increase your exemptions. This will lower the amount of each of your paychecks throughout the year but give you that “Merry Christmas” feeling when you get a large refund at tax time.
Hire a Professional
Although it’s easy enough to file your taxes online using one of the many tax preparation sites available, hiring a professional can really pay off if they can dramatically increase your refund amount.
Experts can easily guide you through the process of claiming deductions and credits, deciding filing status, navigating ever-changing tax laws, and more. Ask your friends and family for recommendations if you do decide to go with a pro.
Refinance Your Home
There are lots of benefits of owning your own home, and tax relief is one of them. The IRS offers a slew of deductions to homeowners and allows interest paid during the year on a home mortgage as one of those deductions.
If you refinance your mortgage, you essentially restart the payment process, which means that a greater part of each mortgage payment is pure interest. More interest is more deductible income.
File Your Return On Time
Whether you do your own taxes or work with a professional, it’s vital that you file your return on time. Your federal tax return must be filed before midnight on April 15. Even if you apply for an extension, you still have to pay your taxes by April 15 or you’ll incur penalties and interest. Also, be sure to check the filing deadline for your state because it may be different than the federal deadline. Don’t waste your hard-earned money on unnecessary fees!
And one final tip — once you hit “submit” on your tax return you can even track your refund status with a nifty tool the IRS has on its website.