During tax season, the majority of us look for ways to pay not a cent more than what we owe. Some strategies beyond the obvious will give you sure ways to decrease your tax liability. Here are five ways you can do so.
Filing Status
One of the most important decisions you when preparing your taxes is your filing status. This can have a significant impact on your refund’s size, particularly if you are married. Although the majority of the married couples file their taxes jointly, a joint return will not always be the most helpful way to lower your taxes and increase your refund.
Married-filing-separately requires more effort but can be worth the time if it lowers your taxes. Computing your taxes trying both methods will indicate which one is best for the maximum refund.
The Internal Revenue Service (IRS) uses a proportion of AGI (Adjusted Gross Income) to find out what deductions can be taken. Filing tax refunds separately provides each spouse with a lower AGI.
Deductions
Having an accurate bookkeeping system will be important when figuring deductions on your taxes. You should keep records throughout the year and retain receipts as itemized deductions require proof if audited.
Once you have calculated the amount of your itemized deductions through your bookkeeping records, you will need to compare the amount to the standard deduction amount. In some cases, it will give you more money in your pocket to itemize, and other times the standard deduction will be higher. Figuring deductions is important as it affects your tax bottom line.
Individual Retirement Account (IRA)
An IRA provides tax advantages for retirement savings. IRAs offer you the versatility of claiming the credit amount on your tax return and can give you another way to receive a higher refund. If you don’t have an IRA, you should get one, as it can provide tax relief and savings for your future as well.
Interest Relief
Those who pay taxes and keep a watch on the calendar, increase their probabilities of receiving a larger refund. If possible, try to pay your mortgage payment for January before December 31. You will receive an added interest due to the tax return mortgage interest deductions.
Credits
As refund boosters, credits offer a higher return than deductions. For every credit dollar, your tax dues drop a dollar. A shocking 20% of eligible Americans do not declare their EITC (Earned Income Tax Credit). If you are working and meeting the guidelines, you are qualified for EITC, even if you are single and have no children. In the case where you do have children, the day-care credit can also help you. Be educated on every credit that can be taken and take the ones you qualify to take.
Tax laws change every year. If you follow these basic tips, you will be sure not to miss important deductions, credits, and other factors that will significantly reduce your tax bill and get you a large refund. Being familiar with these aspects of tax preparations will get you more money in your pocket to save or spend, thus boosting the economy.
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