So what separates the people that “win” every tax refund season from those that simply survive it? What do they know that you don’t? For one, they know how to minimize their tax liability.
Reducing the amount you owe is the surest way to get the most money back. Here are a few time-tested tips to lowering your tax liability and boosting your refund next tax season.
Choose the “Right” Filing Status
One of the first things you have to do when you fill out your tax return is choose your filing status. Most people don’t give a second thought to filing jointly if they are married or filing as an individual if they are single. However, it may not be as straightforward as that, considering that the way you file can have a significant impact on the size of your refund.
How much is your time worth? If you are married and doing your taxes yourself, taking the time required to calculate the difference between filing jointly and married-filing-separately could be well worth the effort, especially if you come across significant savings with one over the other.
There are exceptions for single filers, too. If you are the primary caretaker of a parent and you paid more than half the cost of maintaining his or her residence during the year, you can claim head of household status and reap the associated benefits.
Increase Your IRA Contributions
One of the most flexible ways to boost your tax refund is to increase your contributions to your individual retirement account. You literally have until the last minute—April 15th—to claim the credit on your return. You can even file early and use the refund to open your IRA.
By maxing out your IRA contributions you are not only exercising prudence for your later years, you are also lowering your total taxable income. The more money you place in your IRA, the less income is subject to taxes, which usually leads to less you owe. And the less you owe the IRS, the greater your refund.
If you are starting to contribute to your IRA later in your career, you can take advantage of its “catch-up” provision. This arrangement allows you to contribute more to your IRA after age 50, and in certain cases lets you claim the retirement savings contribution credit that lets you lower your taxable income even further.
The Power of Credits
When it comes to getting the biggest refund you can, most people know about the deductions they can take, but not enough are aware of the tax credits available to them. And between deductions and credits, the latter are where the savings really are. Where deductions work at lowering your taxable income, each dollar in tax credits is equal to a dollar in tax refund—meaning one less dollar you have to pay in taxes.
There are a number of credits to take advantage of, including the tragically overlooked Earned Income Tax Credit for certain working citizens and the American Opportunity Credit for higher education expenses, among others. However, tax laws and credits are constantly in flux, so staying informed of the most recent changes and how they can benefit you is a sure way to make your next tax season more rewarding.
If all else fails, then contact us. We are certified tax professionals whose livelihood depends on saving you as much money as possible. Feel free to call us today to schedule an appointment.