Tax Day will be here before we know it
It’s almost that time of year again. Are you one of the responsible individuals who has their taxes done by February, or are you a procrastinator who’s left scrambling right up until the April deadline?
Either way, here are 10 tips and tricks to making sure you maximize your refund (and minimize your amount due, if that’s your situation).
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.
Don’t overlook professional expenses
Did you know that you can deduct for job-related expenses that you paid for out of pocket?
Here are just a few eligible professional expenses:
- Medical examinations required by an employer
- Depreciation on a computer your employer requires you to use in your work
- Home office or part of your home used regularly and exclusively in your work
- Research expenses of a college professor
- Tools and supplies used in your work
- Travel, transportation, meals, entertainment, gifts, and local lodging related to your work
- Passport for a business trip
- Work clothes and uniforms, if required and not suitable for everyday use
- Subscriptions to professional journals and trade magazines related to your work
See the complete list at IRS.gov.
Invest in tax planning
This is one of the best ways to take advantage of all the deductions you’re eligible for, and get the maximum tax refund possible.
Tax planning 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.
Pay your mortgage early
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. Watch the calendar!
Start a home business
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.
Open an IRA
We’re not about to lecture you for not saving enough for retirement, but did you know that you have untilApril 15thto open a traditional IRA for the previous tax year (2015)? This allows you to claim the credit on your 2015 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 in 2015, 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.
The eligibility requirements are pretty straight-forward:
- Not be a claimed dependent or child of another person
- Have a valid Social Security number
- Be a U.S. citizen, a year-long resident alien or a non-resident alien married to an American citizen or resident alien filing jointly
- Have income from self-employment, from an employer or from working on a farm
- Have a qualifying child and be between the ages of 25 and 65, living in the U.S. for at least half the year
More information about eligibility requirements can be found on the IRS.gov website.
Take advantage of all 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. Simply visit //irs.treasury.gov/freetaxprep/ to find out if you are eligible for free tax preparation help.
Donate, donate, donate
Charitable donations help others, make you feel good, and can also offer substantial tax savings.
A caveat: charities must be nonprofits that can prove 501(c)(3) tax status in order to qualify you for a tax deduction. 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, 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.
File for free
Anyone with a household income of less than $58,000 are eligible to use the IRS tax filing software at absolutely no cost.
Don’t pay for something if you don’t have to! Every dollar counts.
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, find that itemizing leads to a lower tax bill.
There are a few situations where itemizing deductions is nearly universally recommended. If you’ve experienced any of these situations below, you’ll probably want to explore itemizing.
- Have had substantial unreimbursed medical and dental expenses
- Have paid interest or taxes on your home or other personal property
- Have incurred substantial unreimbursed employee business expenses
- Have had large unreimbursed casualty or theft losses
- Have donated large contributions of cash or tangible goods to charity
One note: when spouses file jointly, if one of them itemizes deductions their spouse must also itemize.
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.
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
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.
Personally, I’d rather take the extra money in my paycheck and put that into an interest-bearing account. All a matter of personal preference though! Do what works best for your situation.
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.
The five filing statuses are:
- Married filing jointly
- Married filing separately
- Head of household
- Qualifying widow(er) with dependent child
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 TurbTax can help you determine which status is best for your needs.
Hire a professional
Although it’s easy enough to file your taxes online using one of the many tax preparation sites available, hiring a tax professional can really pay off if they can dramatically increase your refund amount.
These experts can easily guide you through the process of claiming deductions and credits, deciding filing status, navigating ever-changing tax laws, and more.
Ask friends and family for recommendations if you do decide to go with a pro.
Refinance your home
The IRS offers lots 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.
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 legitimate if your non-relative has 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 – be sure to check into this when filing.
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 Tuesday, 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 hey, 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.