Usually, taxes are regarded negatively because you are going to pay from your own pocket and people think that the government is not utilizing the taxpayer money in the right way. But there are so many ways by which you can get more money back on your taxes. Taxpayers deserve money in the form of various benefits and here we will take a look at some ways where you could get more money back on your taxes.
- Your tax filing status
You may not realize it, but your tax filing status can have a big-time influence on your tax returns. Let’s say if you are a married couple and filing your taxes jointly, this would be easy to file but filing for your taxes separately could be more beneficial. According to a study 96% married couples file jointly and do not get to enjoy the tax savings. By filing separately, you get to take return tax if you are jobless but at the same time, they would deduct individual medical expenses if you took any medication or surgery. Considering this drawback, we urge you to be considerate of your situation and then decide.
If you are single and unmarried, you may enjoy a higher standard deduction and more favorable tax brackets in the family if you file as Head of Household. but if you are dependent on your spouse to make a living, you’d have many tax issues.
Since 2020, the Child Tax Credit is available for couples, and they can file separately. The credit is $2,000 per child under 17 years old, and it can now be claimed by a separate filer with less than $200,000 in adjusted gross income. The joint amount for both filers is $400,000 in this case. The amount is expected to rise in 2021.
- Embrace tax deductions
Many of us always hate the procedure of filing tax but minor deductions exist and most of them are commonly overlooked. These small deductions you qualify for can make a significant impact on your tax refund. Some of them include the following.
State sales tax: Each state has its own rules of deducting tax and with your status, you might be qualified for less tax. You can calculate your local sales tax by using the IRS’s calculator.
Reinvested dividends: If you automatically have dividends from mutual funds reinvested, you can include it in your cost basis. This way, you can avail the opportunity of tax reduction every time you sell a share.
A record of donations and charitable contributions: We are often blinded by big donations cheques but that’s not all you do. Keep a record of small expenses that qualify for your taxes. It could be the smallest thing like the ingredients for the yummy cake that you donated to the bake sale in your area. Small things can add up with big things and eventually you will have enough for your tax deduction.
Student loan interest: If you are the one who studied or if it is someone else that you are paying for, you can get the deduction for it as long as you are the one who is obligated to pay. Make sure you meet all of the requirements for the deduction.
Child and dependent care: If you are taking care of a child or an elderly, you can get up to $6,000 of qualifying expenses for the Child and Dependent Care Credit. But you will have to show the paystub and other receipts of expenses to claim this.
- Maximize your IRA and HSA contributions
Every year, dates are issues for filing taxes. Usually, you have the time till the last date to file your taxes, but you can also contribute to a traditional IRA for the previous tax year. This way you can claim the credit on your return if you file your taxes early and use your refund to open the account.
Traditional IRA contributions can reduce your taxable income if you are 50 years old. Also, the same happens with Health Savings Account (HSA) if you file for your taxes early.
But you can’t qualify for IRA and HAS contributions if you
- have “first-dollar” medical coverage
- Medicare coverage
- Timing of your filing can have an impact on your tax refund
Filing your taxes on time can make a big difference. You need to watch the calendar and get an idea of how to make the most of your tax refund if you apply for them before the year ends. For instance, if you make January’s mortgage payment before December 31, you can get the added interest for your mortgage interest deduction for that.
In the same way, if you schedule health-related treatments and exams in the last 3 months of the year, there is a good chance that your medical bills will receive an expense deduction potential.
As for charitable contributions, you can do that throughout the year, no problems with that but make sure to keep the record and use that when you file for your taxes.
If your status is self-employed, you can claim for home office deductions. For that, you need to look for purchase items that can qualify you for deductions. Things like office equipment and office software, paint and some other things could be alright to let you qualify for a handsome tax deduction.
- Apply the rules of tax credit
Tax credits are another way to refund some of the money that you pay to your government. And in some respects, it usually works better than deductions. In tax credit, if you get a $100 credit then you will get $100 off your taxes. What could be better than this? Especially, if you are single, broke, and have no children, you can take the tax credit and get a tax refund fully. You can also claim education credits if you are a college student or supporting a child in college.
If you’re in graduate school or beyond, you could claim the Lifetime Learning Credit under some conditions as well.