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Tax season is just around the corner, and you’re probably preparing yourself for the grueling task of compiling all of your receipts, W2’s and personal information to file your yearly tax return.
Many Americans try every year to find all the ways that they can maximize their tax returns, but not everyone knows the in’s and out’s of dealing with the IRS and making sure that their return gives them the most money back that they can get.
Finding ways to maximize your tax return is the best way to ensure that you looking for every possible way to amp up your money back from the IRS, and you should because it’s your own money after all!
There are a ton of ways to make sure that you head over to your tax filing with all the tools in hand necessary to optimize your filing experience and get back what is rightfully yours after a hard year of work.
Filing your tax return can be stress-free if you make a point of planning ahead and looking into ways that your yearly spending, investments, and income can bring you back money at the end of the year.
10 Ways to Maximize Your Tax Return
There are many steps in the process of filing your tax return, and whether you’re filing on your own or going to a tax agent who can help you file things, you should make a point of knowing ahead of time what you need for your tax return and ways that you can find credits from different avenues.
Everything on the following list of ways to maximize your tax return won’t necessarily apply to everyone, but if you look through the list there may be more ways for you to amp up your tax return and perhaps give you ideas about how to deal with your finances in the future.
1. Know All Available Deductions and Your Exemptions
Having a good grasp on what the deductions that are available for your this tax year are as well as what exemptions you may be eligible for is a great way to start moving forward with your taxes.
Having an idea what ways you can deduct from your overall tax bill at the end of the year can mean a great return.
When it comes to filing your taxes, the mayor differences between what an exemption is and what deductions are is simple.
A tax exemption refers to the money you’ve earned through out the year which you have to pay zero taxes on.
A deduction is a credit applied to the amount of tax you owe, lowering the amount of taxable income available for the IRS to deduct taxes from you.
The two main kinds of deductions that exist are the standard deductions, and the itemized deductions.
As a taxpayer, you can choose to deduct from your taxes in one of these two available options, not both.
The IRS suggest that if the entire amount of your itemized reduction is more than what your standard deduction is, then you should definitely itemize your deduction.
In 2018, the standard deduction for a single person increased from $6,553 to $12,000 per person.
If you’re the head of your household on your taxes, then your standard deduction would be $18,000.
If you’re married, your standard deduction if you’re filing jointly would be $24,000.
Knowing your way around exemptions and deductions is important if you want to boost your refund check or lower your due taxes at the end of the year.
Exemptions and deductions are keys to lowering your due taxes every year, and it’s important to get acquainted with them properly so you can make financial choices that are beneficial for you.
Standard deductions are pretty straightforward, but there are various itemized reductions that you should look into.
Charitable contributions to qualifying organizations through out the course of the year that you’ve itemized can potentially help lower your tax bill.
For this to be applicable to you, you’ll have to keep a record of every amount you contribute in the form of a receipt or a bank record such as your monthly statement.
This statement will need to have the name of the organization, the amount that you donated, and the date of the donation.
Medical and Dental Expenses
Throughout the course of the year, it’s possible that you’ll have to spend money on dental and medical expenses.
If this is the case for yourself or your family, it might be a good idea to look at the possible medical and dental expenses deduction for your tax return.
If you’re paying for dental or medical expenses out of pocket, and they’re more than 10% of your adjusted gross income, then you should be eligible for this credit.
Home Mortgage Points
Home mortgage points is prepaid interest on your home mortgage.
If you itemize your deductions on your taxes, you may be able to deduct these points as home mortgage interest at the end of the year.
Some other options for deductions that homeowners can use are property tax deductions and mortgage insurance deductions.
Work-Related Education Expenses
If you spend money during the year on work-related education, you may be able to deduct these costs from your taxes if you itemize your return.
Things like tuition for classes, books and supplies for your courses, fees for labs and equipment, transportation and travel costs, and the cost of research can be deducted if they are eligible fees.
These expenses have to be directly correlated with maintaining or improving your job skills or are required by law or your company to keep your job position, your yearly salary or your entire job.
If you have to spend money on your job each year to help maintain your upgrade your position or skills, then you’re likely eligible to file these deductions with your tax return.
State and Local Income, Sales and Property Taxes
If you paid state and local taxes, sales taxes, or property taxes, you can deduct these in an itemized return filing.
Personal Casualty Loses
If you were the victim of a natural disaster declared by the president to be of that stature, then you might be eligible for a casualty loss deduction.
This deduction can include the loss of your home, household items of value, and your vehicle if your insurance has not been able to cover these loses.
Home Office Expenses
If you’re an independent contractor or freelancer, there’s a good chance that you work from home.
There are several restrictions for this particular deduction, and you should be careful if you plan to use this on your itemized tax return.
This particular deduction covers the cost of things related to your home office.
2. Rethink Your Filing Status to Give Your Refund a Boost
On important aspect to filing your tax return is your status as an individual in your home or your family.
Different filing statuses have different benefits depending on who you are in your home in terms of expenses and making sure everyone is taken care of.
The options for your filing status are simple.
You can file as single, head of household, jointly as a married couple or separately for a single spouse.
If you are a widow or a widower, you’re eligible to file as thus for a specific window of time after the death of a spouse.
Depending on your filing status, you are eligible for an income bracket that has a specified tax rates per status.
Picking one over the other may mean that you have a lower tax rate, but you have to be legally eligible for that filing status to receive the benefits of that tax bracket.
If you’re the head of household, you are required to be the main supporter of a child or dependent that makes low income and depends on you for most of their financial support.
Depending on how you file, you can receive added benefits and a bigger refund at the end of the year.
A single taxpayer is going to have a standard deduction of $12,000.
This was raised from a little over $6,000 in 2018.
If you’re the head of household, your deduction will be $18,000.
If you’re married and filing jointly, your deduction will be $24,000.
3. Be Aware of What Tax Credits Are and How to Claim Them
There are different tax credits available for people filing their tax return this year, and it’s imperative that you’re aware of what they are – these tax credits can give you quite a chunk of change back at the end of the year.
There are a few credits to pay attention to in the event that you are eligible.
Earned Income Credit
The earned income credit is an important one, and is only available to for low to mid-income individuals.
This credit is mostly beneficial to those who have children.
If you have three or more children, the maximum credit you are eligible for is $6,431, $5.716 for individuals with two children, and $3,461 for those with as single child.
For this credit to apply to you, you have to earn income from a legal job or a self-run business, and your income cannot exceed the limit set for your filing status and your family size.
This is a refundable credit, which means even if you owe nothing in taxes to the IRS, you’ll still get a refund check for the amount of your earned income credit.
Child Tax Credit
If you have a child under the age of 17, you’re eligible for up to $2,000 in tax credits per child.
There is a limit on how much income you can make a year before this credit is no longer applicable, but those rates were tased in 2018.
If you make under $250,000 a year, then you will still be eligible for this credit as a single taxpayer.
If you file jointly, your limit is $500,000 a year between both spouses.
This is an excellent credit for those who have children and want to see their refund check boosted at the end of the year.
These are just two of the many credits that you may be eligible for.
There is also the Child and Dependent Care Credit, the American Opportunity Credit for college students, Energy-Saving Home Credit for individuals with energy efficient homes, and the Electric Vehicle Credit for the environmentally conscious driver.
4. Add to Your Retirement Accounts
If you’re looking to shield your income from being tax-deductible, then you should consider adding to a retirement plan like a 401K.
Contributions to your retirement investment accounts are taken out before you pay taxes, lowering the amount of taxable income you make every year.
You can also use an account like an IRA, although the money won’t be separated from your taxable income, although you can deduct what you contribute to your IRA account on your tax return when you file.
There is a limit on how much you can contribute to your retirement account a year, which is $18,500 a year as of 2018.
If you are 50 or older, the limit has been raised to $24,500.
These contributions don’t end on the 31st of December like other aspects of your tax return.
The cut-off is usually the last day to file your taxes, April 15th, and this amount will all apply to the previous year’s tax bill.
401K contributions have to happen by the 31st of December.
This option is a double-whammy because it gives you the ability to save for your retirement, which is of great importance, and also gives you the ability to lower your taxable income in one fell swoop.
This is a valuable option, and the tax break is a welcoming one that will keep your tax bill lower than it would usually be every year.
5. Claim Nonrefundable Credits as Well as Refundable Ones
Claiming nonrefundable tax credits can be as beneficial as claiming refundable ones.
A nonrefundable tax credit is a credit that you can use to pay your tax bill, but the excess of the credit will not be returned to you in your refund check.
This means that if you have a credit for something like the Child and Dependent Expenses that is $300 and you have a tax bill of $200, you will fully eliminate the tax bill but you won’t see the extra $100 on your refund check.
It’s a great way to help eliminate any outstanding tax debts you may have without cutting into your own disposable income.
Your Earned Income Credit will be the most of your tax refund if you’re eligible, but these other tax credits won’t be included in your refund.
You can use these tax credits to cover the cost of your total tax bill and increase the refund from your Earned Income Credit.
Due to this, it’s a good idea to look into the nonrefundable credits as a way to save on your tax bill and increase your overall refund in a roundabout way.
6. Report All Your Income
One very important aspect to filing your taxes is reporting all of your income.
This might seem obvious, but the repercussions of not claiming all of your income can end up costing you much more in the long run.
There are all sorts of fees and penalties that you can end up dealing with if you forget about that 1099.
This could be accidental or purposeful, but regardless of how it happened, you’ll still be at the mercy of the IRS, who doesn’t ever exercise mercy really.
A lot of contract workers and individuals who are self-employed will end up with one or more of these documents, and the IRS will as well.
This means that you can go through the process of filing your taxes and getting a refund back without a hitch, but if the IRS uncovers your faux pas, they will garnish the fees and penalties from your future tax return if the fees are not addressed and paid for before the end of the year.
Save yourself the trouble of having to pay a huge penalty because you accidentally forgot to report all of your income.
Instead, keep a tidy spreadsheet with all the information about your taxable income throughout the year.
7. Get and Keep Health Insurance for the Whole Year
The Affordable Health Care Act was a confusing one when it first began, but by now you’re probably accustomed to the process of applying for and getting health care to help keep you healthy and help you avoid that pesky penalty.
Luckily, the penalty is gone now as of 2018.
Despite this, having health insurance may seem like an expensive acquirement.
Even if you’re paying monthly or going through your employer for your health insurance, you will save money if you have health insurance during the year because it boosts your refund.
On top of your refund, you can apply for a tax credit that can boost your refund check if you’ve spent money out of pocket during the year for medical and dental expenses.
If you have yet to do so, schedule a check-up with you doctor to open yourself up to this credit.
Again, there is no health insurance penalty if you did not register for health insurance this year, but if you do apply and get health insurance, you may be entitled to other benefits that can boost your refund check at the end of the year.
8. Pay Off Your Debts
Dealing with student loans every year can be stressful and financially straining, and having to account for them during tax season can be a headache all its own.
One good way of improving your tax return process as well as the amount of your return is to pay off any outstanding debts you owe, especially if it’s to the IRS.
Being in student loan default or owing any money to the IRS will mean that you will most likely have some part, if not all, of your tax return taken back by the IRS.
If you’re counting on the extra money at the end of the year, then it’s a good idea to stay on top of your student loans and make sure to pay back any taxes or other fees that you owe to the IRS.
This will most likely mean that your tax bill will be higher this year, but if you pay off the amount necessary to clear your debts, then your tax return the next year and even the year after will be considerably higher.
If you’re caught in a rut paying back the IRS, it’s a good idea to find yourself a tax advocate who can help you deal with whatever debt you may have.
There is a chance that you may be unable to pay your debt to the IRS in full all at once or may have to stave off the bill until you’re able to pay it the following year.
A tax advocate will help you work around your restrictions and allow you the option of selecting a repayment plan that will lower your bill in installments that you can actually pay.
To avoid student loan garnishments from your tax refund, take with your student loan servicer about ways to get out of student loan default.
9. Aim to Break Even Throughout the Tax Year
The goal of getting a refund at the end of the year is a bit of a complex one.
It’s important to remember that all the money that you get through your refund was in fact originally yours to begin with.
This means that your refund is an amount that you paid over the course of the year in taxes that was over what you actually needed to pay for the year.
This means that you’re just getting back what you already made.
This being the case, then, it’s important to consider breaking even with your taxes before the year is done.
This isn’t necessarily an easy thing to achieve, but if you manage to lower your tax returns then that means that you’ve paid less throughout the course of the year and will have had that money available to do with it what you will when you get paid.
Alternatively, you can choose to pay even more taxes throughout the year to get an even bigger refund at the end of the year.
Think of it as a convoluted way to go about saving money.
When you fill out your W2 for your employer, try to up the amount that is taken from each of your paychecks to cover potential taxes that you may owe.
This will guarantee that your taxes are paid by the end of the year, and will mean that your refund will be greater thanks to your preemptive tax payments.
10. Avoid Withdrawing from a Retirement Account
If you take taxable income out of your retirement account, you will be required to pay taxes on that money.
IRA’s and 401k’s are tax-differed while they are growing, meaning that you will not pay taxes on your retirement accounts while they are sitting in the accounts.
The moment that you remove the money from the account, the tax bill drops on your lap.
If you’re not ready to retire, avoid taking money from your retirement account, otherwise you will be responsible for paying up on the required taxes.
If you’re in the retirement phase of your life, make sure to withdraw from your retirement accounts wisely to avoid having a whopping tax bill dropped on you at the end of the year.