Most of us have no problem when it comes to shopping around to save $100 on a vacation flight. Or using an app to save $10 on a meal at a restaurant. But shop around for a tax break? Who does that? You, that’s who!
If your goal is to get the biggest refund possible, check out our suggestions for helping you boost your bank account!
- Increase Withholding
The information you provide on your W-4 determines how much money is withheld from your paycheck each pay period and paid toward your personal income taxes. The calculation is based on the number of exemptions that you claim. Generally, the fewer exemptions you claim, the bigger refund you can expect at tax time. Using a W-4 Withholding Calculator like this one can help you estimate what you should be claiming, depending on what your needs/wants are: https://www.irs.gov/Individuals/IRS-Withholding-Calculator.
Some factors to consider when choosing the number of allowances you claim include: claiming allowances for yourself, your spouse and your qualifying children/dependents. Taking an allowance for filing head of household, claiming more than $1,500 for child and dependent care expenses, working more than one job, and having a spouse who works (and is also claiming allowances).
So if your goal is to increase the dollar amount you receive in your refund, you can go to your employers Human Resource Department and request to change your W-4 tax form. The times of year you’re allowed to make this change may depend on your company’s policies, but generally, it be done at any time.
- Revisit Your Filing Status
Your filing status determines your standard deduction, your filing requirements, the credits you are eligible to receive and the amount of tax you pay or refund you receive. Also how you file, such as single, head of household, married filing separately or jointly, and others, can greatly influence the amount of money you receive in your refund.
Some things to consider;
· In general, married couples tend to file together (jointly), and there are some tax breaks available only to that group. However, there are times you may want to consider filing “married filing separately:”
- One spouse has a large amount of unreimbursed medical expenses (such as COBRA payments).
- One spouse has a more than average amount of miscellaneous deductions. For example, a spouse that spends a lot of time on the road or in the air, or an unemployed spouse looking for work may be able to deduct long distance phone calls, resume prep, career counseling and networking.
- One spouse is behind on child support or student loan debts.
· Tax reductions from claiming dependents can cut a single parent’s tax bill when he or she files as head of household.
Single taxpayers who care for parents may also qualify for the more advantageous head of household status providing they paid for more than half the cost of maintaining that parent’s residence for the whole year. Note: your parent need not live with you, when you pay more than half of their cost to live in a home for seniors or rest home.
This year, check to make sure your filing status is giving you the biggest bang for your buck!
- Deduct All Donations
Standard deductions versus itemizing. Which is better? The standard tax deduction is a deduction set by the IRS that allows you to reduce your taxable income if you cannot take advantage of more tax deductions by itemizing. And although standard deductions will help lower your taxes, if you take a little time and gather up some of your receipts, you may find that you can itemize your deductions to get a bigger refund.
Some common expenses that are deductible include:
· Property – you can deduct donated real estate, furniture, clothing, automobiles, electronic equipment and office supplies.
· Mileage – if you use your car to assist a non-profit, you may deduct the portion of mileage that was used.
· Cash – cash donations are also deductible.
· Tithes – you may deduct tithes to churches and certain other types of religious organizations.
- Maximize Your IRA Contributions
One of the most highly recommended ways to increase your tax refund is to increase your contributions to your retirement fund. A win-win!
Contributing to an IRA not only facilitates saving for retirement, but placing money into the IRA lowers total taxable income because it comes off the top. The more you contribute, the less of your income is subject to taxes. And you have until April 15th to open a traditional IRA for the previous tax year, so you still have time to benefit! And, this gives you the flexibility of claiming the credit on your return, filing early and using your refund to open the account. Be careful though, be sure to make the IRA contribution by the deadline and know your limits. There’s a maximum amount that can be applied for lowering taxable income. Consult a tax professional and/or a financial planner to ensure your IRA contributions are made on time and in the right dollar amount.
- Become Credit Savvy and Refund Happy
A tax credit is a dollar for dollar reduction of the tax you owe, and a refundable tax credit will allow you a credit beyond your tax liability. Credits generally work better than deductions as refund boosters. And in essence, for each credit dollar, your taxes go down a dollar.
You’ve probably heard of the Earned Income Tax Credit (EITC). Working families, individuals, people who are self-employed and others who have a moderate to low income may qualify. The EITC decreases the amount of taxes owed and may qualify you for a refund.
Other credits to consider include;
- Child and Dependent Care Credit – if you paid someone to care for your child, spouse or dependent last year, you may be able to claim the Child and Dependent Care Credit.
- Energy Tax Credit - Taxpayers who upgrade their homes to improve energy efficiency or make use of renewable energy may be eligible for tax credits to offset some of the costs.
- Education Credits - An education credit helps with the cost of higher education by reducing the amount of tax owed on your tax return. If the credit reduces your tax to less than zero, you may get a refund. There are two education credits available: the American Opportunity Tax Credit and the Lifetime Learning Credit.
For more information on available credits, visit the IRS’s website at https://www.irs.gov/Credits-&-Deductions.
- Timing Can Boost Your Refund
Taxpayers who watch the calendar improve their chances of getting a larger refund.
- If you can, pay January’s mortgage payment before December 31st and get the added interest for your mortgage interest deduction. Remember this one for next year!
- Schedule health-related treatments and exams in the last quarter of the year to boost your medical expense deduction potential.
- Paying property taxes by New Year’s Eve could make the difference between itemizing and taking the standard deduction, possibly resulting in a bigger refund.
- If you are self-employed, you can pay your fourth quarter state estimated taxes in December, rather than in January when they’re normally due, to increase your itemizing potential.
The sooner you e-file with direct deposit, the sooner you will receive your tax refund, allowing you to put that money to good use. Do you have some debt left over from the holidays? Or a loan you’d like to pay off? If you receive your tax refund soon, you can pay down your debt earlier and eliminate some of the interest charges.
So what are you waiting for? Get the refund you deserve!
