Tax season may only seem to span from January to April, but the reality is, you should really be planning for taxes all year round. Before you start panicking about W2s, 1009s, and more—relax. There are simple ways you can maximize your refund that have little to no number-crunching involved. Whether you’re happy with last year’s refund or need to make a change, follow these tips to keep your hard-earned dollars in your wallet when tax season rolls around.
Note: If you’re still waiting on your 2018 refund, check the stages of an IRS refund to ensure you’re on the right track to get your get your refund in the mail soon—an electronic return should process within 21 days of the filing date.
Check Your Filing Status
There are five filing statuses to choose from when you submit your yearly tax return:
- Married filing jointly
- Married filing separately
- Head of household
- Qualifying widow(er) with dependent child
These filing options depend first on your circumstances. If you’re married, you will need to file under either of the “married” statuses—but they also depend on your personal preference, like if you choose to file jointly or separately with your spouse. You might find that changing your filing status may help you earn more money back on your next tax return—if you meet certain requirements, of course.
Filing separately might make sense for you if:
- You and your spouse have deductions based on your Adjusted Gross Income. Medical expenses for one spouse are a common instance.
- You or your spouse have income-based student loans that can be deducted on your tax returns.
- You need to protect yourself from liability issues in case one spouse suspects the other is involved in tax evasion or misfiling.
Optimize Your Credits and Deductions
One of the most effective ways to boost your tax refund is by claiming tax credits and deductions. Depending on the type you elect (and qualify for), you can either directly reduce the amount of taxes you owe, or lower your taxable income. Sold? Let’s discuss the specifics and talk about some examples of credits and deductions you may be able to claim on your next tax return.
A tax credit is a dollar-for-dollar reduction in your tax dues. That means if you owe $1,000 in taxes but you qualify for a $1,000 tax credit, your tax balance becomes zero. Tax credits range from sustainable purchases to caring for your kids.
Here are some of the best money-saving tax credits:
- Green purchases: If you invested in a solar energy system in 2019, you may be saving more than just energy costs. As of 2019 tax law, you can deduct up to 30% of the cost of installation from your federal taxes.
- Child Tax Credit: Following recent tax reform, the child tax credit increased to $2,000 per qualifying child—meaning that you could save $2,000 on your total tax bill for each of your children, with the right paperwork, of course.
- Retirement Investment: Investing in an Individual Retirement Account (IRA) not only helps you save money on your tax bill, but it can also be a great way to build up your savings toward retirement.
Instead of lowering your tax bill altogether like tax credits, tax deductions reduce your taxable income. Your taxable income is the amount the government can tax you on—the higher that number is, the more taxes you’re likely to owe.
Here are a few tax deductions that are commonly overlooked:
- Out-of-pocket charitable contributions
- Moving expenses to take your first job
- Jury paid to your employer
Increase Your Tax Withholding
If you subscribe to a sort of “out of sight, out of mind” perspective, this tip is for you. While it may not guarantee you pay less in taxes, increasing your withholding amount can lessen the likelihood that you owe taxes at the end of the year. To increase the amount your employer withholds from your paycheck, you will need to file or re-file a W-4 with your employer. Zero is the highest amount you can ask your employer to withhold.
If you’re ready to cut down your tax bill, use these tips to help you prepare to save some cash on your next refund!
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