With tax season right around the corner, many people are scrambling to get their tax documents in order. After securing all of these tax documents, the common goal of many taxpayers is to secure the largest possible tax refunds from the state and federal governments. Here are some tips on how to get the best tax refund. Keep in mind that even if you do not get a tax refund, these tips could help you to reduce or eliminate your tax liability.
Select The Right Filing Status
One of easiest ways to make sure that you get the best tax refund possible is to select the correct filing status. This is particularly important if you are married, if you qualify for the head of household filing status or if your spouse has recently died. Each of these three filing statuses typically offer larger tax breaks than the single filing status. Therefore, before filing your taxes under the single filing status, check to make sure that you cannot qualify for one of the other filing statuses.
Double Check Your Math
Avoiding math errors is another easy way to ensure that you get what is coming to you from the IRS. Keep in mind that the IRS has fact checkers on hand whose job it is to flag math errors on tax returns. While their job is technically to check for all types of errors, it is not unreasonable to assume that the majority of their focus is placed on finding errors that result in a larger tax payment to the IRS. Therefore, if you make a math error that results in you receiving a lower refund than you are entitled to, the onus might be on you to point out the error. You can avoid having to fight for a larger return all together by double checking your math. You might also avoid an audit.
Education Credits And Deductions
If you are financing the cost of your child’s college education or you are paying for your own education, you may be eligible for certain tax breaks on the cost of the education. The American Opportunity Tax Credit and The Lifetime Learning Credit are two tax credits that offer dollar-for-dollar tax liability reductions to qualified individuals. There are also several tax deductions available to help reduce your taxable income including The Student Loan Interest Deduction and The Tuition And Fees Deduction. The bottom line is that if you are paying for a college education, you should check to see if you qualify for a tax break.
Child And Dependent Care Credit
If you paid for childcare for your child or qualifying dependent, you may be eligible for the child and dependent care credit. This credit allows you to reduce your tax liability by a percentage of the amount of childcare expenses that you paid during the tax year. Generally, your child or qualifying dependent must be under the age of thirteen when the care was provided. For more information on the eligibility requirements for this credit, see the IRS publication 602.
Make A Mortgage Payment Early
If you own your home, you might consider making your January mortgage payment before the end of the tax year. Because your January mortgage payment is for the December occupancy period, the interest portion of the payment can be deducted from your taxable income for the previous year if you make the payment before January. This will reduce your taxable income for the year.
Contribute To Your Retirement Account
Contributing to your standard 401k or IRA before the end of the year is a great way to reduce your taxable income. Because the contributions to standard accounts are made on a pre-tax basis, your taxable income will be reduced for the year. It is important to note that you will have to pay taxes on your retirement contributions when you withdraw them upon retirement.
Take Capital Losses
If you have an investment portfolio, another great way to reduce your taxable income (and therefore increase your chances of receiving a refund) is to sell some of your underperforming investments. By selling some of your underperforming investments, you will be taking capital losses which can help to reduce your tax burden.
Consider Using Tax Software Or Hiring A Tax Professional
If you are not familiar with the multitude of tax credits and deductions available for taxpayers, you might want to consider getting help. Tax software such as TurboTax and tax professionals such as CPAs can help to ensure that you fill out your tax returns accurately. They can also help you to claim deductions and credits that you might not have known about. Keep in mind that you will have to pay for these services so you should make sure that the tax benefit that you receive from them is worth the cost of paying for them.
Keep in mind that these are just a few ways that you might be able to boost your tax refund this year. You should also note that even if you do not receive a tax refund this year, these tips can help to reduce your overall tax burden which will lower the amount of taxes that you have to pay. For a more detailed explanation of tax planning strategies, it is always a good idea to consult a tax professional.