Most Americans do not like paying taxes and they would much rather get as much money back as possible. The good news is that there are ways in which you can increase your tax refund. Here are the top 10 ways to do so:
1. Rethink your filing status
Your filing status will be one of your most important considerations while you complete your tax return and this can affect the size of your tax refund, especially in the case that you are married. Most couples are known to file their taxes jointly. However, this is not always the best approach if you wish to increase your refund. While separate filings involve more effort, the time that you spend on this will provide you with more tax savings if the circumstances are right.
The IRS makes use of AGI, or Adjusted Gross Income to establish certain deductions, such as some miscellaneous or medical related expenses. If each spouse files separately, then a lower AGI for each person can be achieved.
In case you are a single filer, then you may be able to take advantage of the head of household status to benefit from greater deductions.
2. Analyze your return last year and check for any missed opportunities
Having a look at your return for last year can provide you with a great resource while you prepare tax filings for the current year. This way, you can gather all the important information like your AGI and also get an idea as to the type of refund that you should be looking into. This will help save a considerable amount of time and provide you with greater insight.
3. Maximize IRA contributions
You can open up a traditional IRA for the previous tax year until 15th April. This provides an individual with sufficient flexibility to file early, open an account with the refund, and claim credit on the return. Traditional IRA contributions also help in reducing an individual’s taxable income. The advantage of maximum contribution as well as catch up provision (in the instance where you are 50 years old or older) can be taken, for adding to the IRA. A retirement savings contribution also helps in lowering one’s taxable income in the instance where contribution towards Roth IRA took place.
4. Focus on your timing
It is best to pay off your mortgage payments for January before the 31st of December so that you can receive the added interest for mortgage interest deduction. Also, health related exams and treatments need to be scheduled in the year’s last quarter so that your medical expense deduction potential can get a boost. Additionally, if you make your property tax payments by New Year’s Eve, you can benefit from a bigger tax refund.
5. Increase your withholding
When starting a new job, you will most likely be asked by the human resource department to fill a W-4 form where you have to indicate whether you are married, single, or have children. The more people there are in your household, the more the exemptions or allowances that you can claim for yourself.
In case you are looking to increase your chances of getting a refund by spring, then you should let the human resource department know that one of your exemptions need to be dropped and that more money needs to be withheld each month.
6. Deduct donations
Itemized deductions can be a great way to reduce taxable income. The IRS will allow deductions of as much as 50% of the entire taxable income specific to charitable contributions to organizations that are exempted from paying taxes. Such organizations include community groups, non-profit hospitals, colleges, charitable organizations, and religious organizations.
The deductible contributions will be inclusive of personal property, securities, stocks, expenses that were incurred while a person was volunteering, as well as money.
7. Professional expenses
Job related expenses are other great itemized deductions. For instance, if you pay for certain job related expenses out of your pocket and your boss fails to reimburse you for these, then you can deduct these costs from the taxable income. Examples of these include laptops and cell phones for work purposes, dues that are to be paid to the professional organizations, work clothes and uniforms that are not worn while off duty, as well as mileage traveled for meeting different clients (this however does not include the daily commute).
8. Familial obligations
A number of expenses that are in direct relation to your immediate or extended family members can be deducted. For instance, if a child has to go to day care so that either or both of the parents can work, then these daycare costs can be deducted from the taxable income. The same holds true for all the expenses that are in relation to taking care of elderly parents or relatives. In case you pay alimony to your ex husband or wife, then you can deduct this as well.
Also, keep in mind that you can deduct many medical expenses that you end up paying out of your pocket for your family. However, this does not include heath insurance premiums.
9. Be updated on current tax laws
Tax laws are always changing to bring about different positive social and economic behavior. For instance, tax credits can now be earned by making energy efficient upgrades to one’s home. Keeping in mind the latest changes in tax laws can thus, help bring about a great boost in your tax refund.
10. Consider starting a home business
In case you run a business from your home, then you are eligible to deduct some of your expenses at home that you use exclusively for running this business. These expenses can include your internet service, a percentage of your rental or mortgage payments that are spent on your home office, as well as telephone service.
Consider these ways in which you can increase your tax refund so that you can start taking the necessary steps to benefit yourself and recover the money that you would otherwise pay in taxes.