Take advantage of these often missed tax deductions and credits to get more money back in your pocket!
Refund season is in full swing. This is the time the majority of taxpayers are filing their taxes so they can get their tax refund. According to the IRS, about 75 percent of taxpayers received a tax refund close to $2,800 last tax season. But some of you may feel like your refund was a little low.
For taxpayers using tax software, you most likely got the most out of deductions and credits, since tax software reminds you of tax deductions and credits you may not have known exists.
Whether you received the tax refund you deserved last year or think you could have gotten back more, here are six tips to help you maximize your tax refund this year.
1. File early. Your W-2 should be in your mailbox soon, so you can go online and finish your taxes. 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 from the holidays? If you receive your tax refund soon you can pay down your debt earlier and eliminate some of the interest charges.
2. Don’t take the standard deduction if you can itemize. The standard tax deduction ($6,300 for singles and $12,600 if you’re married filing jointly) 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. Although standard deductions will help lower your taxes, if you take a little time and gather up some of your receipts, you may find you can itemize your deductions to get a bigger tax refund. Some additional expenses such as charitable contributions, casualty losses, unreimbursed business expenses, job search expenses and the state and local sales tax deduction may push you over the standard deduction.
3. Claim your friend or relative you’ve been supporting. If you have been supporting your friend, significant other or relative, you may be able to get a dependent exemption of $4,000, which is deducted from your income. There are some rules regarding non-relatives and relatives, but the deduction is legitimate if your non-relative has lived with you the entire year (relatives don’t need to live with you), doesn’t provide more than half of his or her own support and doesn’t earn over $4,000 in taxable income.
4. Take above-the-line deductions if eligible. Above-the-line tax deductions allow you reduce your taxable income without itemizing. Examples include if you paid for your students’ school supplies, went back to school to land that promotion, paid alimony, pay self-employment tax, paid student loan interest, contribute to your IRA or had unreimbursed moving expenses. The reduction to your taxable income may also help you get a bigger Advanced Premium Tax Credit if you received assistance to help pay for insurance in the health insurance marketplace.
5. Don’t forget about refundable tax credits. 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. The Earned Income Tax Credit is an often missed tax credit worth up to $6,242 for a family with three our more children. One out of five taxpayers who are eligible for it fail to claim it, according to the IRS. Some taxpayers miss this valuable credit because they are newly qualified due to changes in their income. or they chose not file their taxes if their income is below the IRS income filing threshold ($10,300 if you’re single or $20,600 if you’re married filing jointly).
6. Contribute to your retirement to get multiple benefits. You have until the filing deadline (April 18 this year) to contribute to an IRA and reap the benefits of a tax deduction of up to $5,500 ($6,500 if you are 50 or older). In addition to this deduction, you may qualify for the saver’s credit. This is the only time the IRS allows you to double dip. The IRS gives you an additional credit of up to $1,000 ($2,000 for married filing jointly) if you contribute to your retirement.
These tax tips will help you maximize your tax refund and allow you to spend it wisely whether you are paying down debt, saving it for a rainy day or building up your nest egg. Talk to your tax adviser!