For most taxpayers, a tax refund is a windfall, a huge amount of money that could be used for many important purposes, but is paid in taxes only to be returned a few months later. Although, it is understandable why the IRS chooses this route but it can still feel like a nuisance for most taxpayers, especially those in need of that money. However, for those who are not in an immediate need of that refund can seem like a treat that arrives just in time for some spring spending.
Since the amount of refund you are eligible for is calculated based on the previous year’s numbers, it can give people an added incentive to start working on their federal tax returns as the fourth quarters starts to creep in.
In this article we will take a look on some of the common strategies that can be applied to increase your income tax returns.
Taxpayers who are about to file their tax returns and in the process itemize their deductions should strongly consider making a charitable contribution. The donation can be anything from cash to an asset such as a car, but it is very important to donate to a qualified charity before the year is over. This is particularly beneficial if the piece of property has some value but needs to be disposed such as an extra vehicle. This if done with a decent understanding of how taxation work can provide significant deductions and increase your refund by even thousands.
The importance of retirement cannot be stressed enough, but is a topic for a different article. The most attractive feature of contributing towards your retirement plan is that the amount you contribute becomes eligible for a tax refund from your total income tax. Hence, it is advised that everyone who is earning enough should make maximum allowable contributions to their retirement plans, whether traditional or deductible. The resulting tax refunds can become fairly large, and a nice treat for the coming spring.
Though, Roth accounts are considered to be the best way to go about getting a hefty refund check, but even traditional plans provide an attractive deduction and can ultimately make a huge difference for the declarable income for many taxpayers. Even low income earners and taxpayers can and should claim retirement credits, for the small contribution they make towards their IRAs or whatever employer sponsored plans they are offered.
If you have kids who are going through college then you should know that you are eligible for education tax credits. Countless Americans deplete their hard earned savings to put their children through college to improve their future prospects. Hence, all the more reasons to file for the tax benefits you get from this. Due to the size of a college bill, parents can significantly reduce their taxable amount by thousands of dollars, depending on their unique circumstances.
As rudimentary as bookkeeping may sound, but it is one of the essentials for maximizing your tax returns. We cannot even stress on the importance of recording all of the expenses you incur because the IRS now requires you to provide proof in order to claim tax refunds. So every single donation you make or every above the line deduction you run across should be recorded so at the end of the year you can increase your tax refund. Also, make sure you keep copies of all the receipts for the reason mentioned above, the IRS needs proof. In the unfortunate case that you failed to do so, you are simply inviting a negative adjustment to your tax returns as you would become subject to an IRS audit.
If you are a short term investor in the financial markets, rejoice as some capital losses can be turned into tax refunds. If you are losing on some of your positions, instead of holding on and waiting for the stock to turn around, swap the security out for a stock or bond with better prospects. You can write down your losses for the year on your tax returns, which can provide you with a maximum reduction of about $3,000, which isn’t bad at all.
Many taxpayers are surprised to find out that certain kinds of losses and expenses can be deducted on their tax returns. For example, losses incurred while gambling are deemed as deductibles, of course only on par with the winnings. Moreover, investment expenditure can also be deducted such as margin interest and IRA custodial fees. However, they can only be considered deductable after they exceed a certain percentage of your AGI or Adjusted Gross Income.
When we look towards the world of insurance, we realize about the untold promises that lie within the insurance related expenses. These deductions are by far the most overlooked by the general taxpayers. If you have purchased disability insurance or if you have a health savings account, then you are eligible to write off the expense or premium as deductions in your IRS tax forms. However, in the case of a reimbursement, you will not be able to write it as an expense.
If your medical expenses are 7.5% of your adjusted gross income then you can use it for deductions on your taxable income. The best way to take advantage of this is to accumulate all of your medical bills within a year to significantly boost your total deductions. However, one important thing to remember is that if you get reimbursed by the insurance company a year later, you will either have to send in an amended tax return for the previous year or record the money as income in the following year and pay taxes on it.
It would be nearly impossible to provide complete information on taxation or even simply tax refunds and hence, it shouldn’t be considered complete. These are just some of the basic ways you can reduce your tax bill and boost the rebates in the following year. Due to technology, income tax filling procedures have become quite easy, with countless income tax calculators and apps available.
However, if you really want to take advantage of the benefits offered by the IRS, you will either have to study taxation as tax and accounting professionals do, or you could always hire a professional to do your taxes. Yes, professional services come with a hefty price tag but the resulting benefits usually outweigh the costs and make sure the following year you get the maximum possible of your tax expenditure back.
