Whether you agree with how the government spends your tax dollars or not, the fact is, many people are looking for ways to reduce their tax liability or get a bigger refund at the end of the year. There are many tried and true ways to get more money back on your tax refund, and some of the more surprising ones are listed below. Some or all may apply to you, so be sure to read this article to the end to discover which ones might just work.
1. Choose Your Filing Status Carefully
The filing status you choose can greatly affect the size of your tax refund or make it so that you owe the government more. This is especially true if you’re married, so consider the filing status you choose carefully.
The easiest way to determine which status will result in the bigger refund is to use an income tax calculator. Plug in the numbers for each option to get an estimate of the refund you might receive.
2. Use Tax Deductions
Deductions can have a big impact on how much your tax refund is. Many people overlook or don’t know about the deductions for which they qualify. For example, state sales tax is deductible, as are out-of-pocket charitable expenses. Student loan interest is also deductible, and dependent care is too.
The key to using deductions is to keep good records of your expenses. Receipts are the easiest form of record, but if you don’t get a receipt for something, a simple jotted note with the date, amount/value, and purpose of the expense/donation will suffice.
3. Watch the Calendar
Tax-savvy people who watch the calendar closely and make certain payments/contributions before the deadline can claim these deductions on the previous years’ tax return. For example, by paying next month’s mortgage before the end of the year, you can claim the additional interest on your taxes.
If you know you’ll need specific medical care, try scheduling it before the end of the year to boost your medical expense deduction.
4. Embrace Tax Credits
In many cases, tax credits are better than deductions because they reduce your tax liability dollar for dollar. For example, a $100 tax credit reduces your tax liability by $100.
Unfortunately, many taxpayers don’t take advantage of all the tax credits to which they’re entitled. Some of the more common tax credits include Earned Income Tax Credit and credits for energy-saving home improvements you’ve made throughout the year.
5. Reconsider Your W-4
When you were hired by your employer, they asked you to fill out a W-4 form. This tells your employer how much federal tax they should withhold from your paycheck. Claiming more dependents on this form results in fewer taxes being taken out of your pay, meaning bigger paychecks. It also means you might end up playing catch-up with the federal government on your taxes.
Claiming fewer dependents, however, results in a slightly smaller paycheck, but a bigger refund at the end of the year. If you can do without the extra dollars in your paycheck, you might consider changing your W-4 to get a bigger refund at tax time.
Most people don’t agree with how the government spends their hard-earned money, but taxes are inevitable, no matter which way you cut it. The good news is that there are many ways to reduce your tax liability and increase your refund at tax time. The tips above could be the ticket to the bigger tax refund you’ve been hoping to land.