Tax season Tips You Need To Get the Biggest Possible Refund
Uncle Sam has been hanging around the United States since 1813. Still, it wasn’t until the 1860s and 1870s that he became the tax-happy persona we know and loathe today. His stars and stripes suit, white beard, and finger-pointing directly at the viewer are quite befitting the IRS mascot, asking for all Americans to step up and pay their monetary duty to their country.
Paying taxes gets a bad rap, but it’s actually a good thing. Our tax money funds education, national defense, technology, and a number of other goods and services to all Americans.
Even so, there’s nothing wrong with wanting to keep as much of your hard-earned cash in your own pocket as possible.
Maximize your tax refund this year with these top tax tips.
See If You Can Itemize
Under the new tax law, the standard deduction doubled for single and married filers. Single individuals can now deduct $12,200, while married couples can deduct $24,400.
But don’t assume that you will no longer qualify for itemizing. Save your receipts throughout the year and tally up the total during tax season. You might be surprised by just how many itemizable expenses you incurred, and they might be better than taking the standard deduction.
Claim All Eligible Dependents
Eligible dependents aren’t just your children. If you’ve been financially taking care of a parent or even a non-relative for an extended period of time, you may be able to include them as a dependent on your taxes.
The general rules for this deduction are that your friend/family member does not provide more than half of their support and does not have more than $4,200 in taxable income for the 2019 tax year. There may be other stipulations involved, so consult with your accountant to ensure qualification.
Take Advantage of Above-the-Line Deductions
Above-the-line deductions refer to deductions that reduce your taxable income without itemizing. For example, school teachers can write off what they spend on classroom supplies. If you paid alimony to a spouse, went back to school to earn a promotion, or paid self-employment tax or student loan interest, you could qualify these expenses as above-the-line deductions.
The goal is to reduce your adjusted gross income as much as possible. Doing so could put you in a lower tax bracket and reduce the amount of taxes you’re liable for.
Look Into Refundable Tax Credits
Tax credits are better than deductions because they reduce your tax liability dollar for dollar. For example, if you owed $20,000 in taxes and have $5,000 in tax credits, then you would only owe the net balance of $15,000.
Refundable tax credits are a step better because you can receive any overages in the form of a refund. For example, if you owed $10,000 in taxes but had $15,000 in refundable tax credits, then Uncle Sam would write you a check for $5,000.
One such example is the earned income tax credit, which is worth up to $6,557 for a family with three or more children and low to moderate-income. Work with your accountant to see if you qualify for the earned income tax credit or other refundable tax credits.
Contribute to Your Retirement Accounts
Even though it’s 2020, you can still make a contribution to your retirement accounts that could go toward your 2019 tax filing. Technically, you have until the filing deadline (April 15) to make this contribution, which could affect your taxable income.
If you contribute to a traditional IRA, you can reduce your taxable income. If you contribute to a Roth IRA, you won’t reduce your taxable income. Still, you could qualify for the Saver’s Credit if you meet income guidelines. And if you have a Health Savings Account (HSA), contributions before the filing deadline will help reduce your taxable income.
Direct Deposit Your Tax Refund
Direct deposit will save you more time than money, but that’s not its only benefit. When you choose direct deposit instead of a paper check, you get your money faster and reduce the risk of a check getting lost in the mail.
And the sooner you have that money, the sooner you can invest it or put it into savings to start earning interest.
There are tons of ways to maximize your refund while ensuring Uncle Sam gets his fair share. Take time to explore your options—the money you save could be worth every minute!
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