6 Cheap (Or Free) Ways To Get A Bigger Tax Refund
Just about everyone who files taxes is looking for ways to pay less or get a bigger refund. The good news is that with a little extra work or documentation, there are several ways you can do exactly that -- without changing how you live. Here are 6 of the highest grossing tips for boosting your refund.
Check Your Filing Status. If you're married, compare the tax benefits of filing separately or together. While most taxpayers find that filing together reduces their tax burden, a few will find the opposite to be true -- especially if one partner earns a much higher income than the other or one has large medical expenses to deduct. If you are living together in a state that recognizes common law marriage, consider filing as a joint couple as well. Single parents or those caring for family members should always investigate if they can use "Head of Household" as a more advantageous filing status.
Think About Dependents. If you are paying most of the expenses of relatives or adult children, look into whether you can claim them as a dependent called a "qualifying relative." Generally, you must be paying for more than half of their support and they cannot earn more than $4,000 (in 2015) in order to be claimed as a dependent. If you're unsure, use the handy guide at the IRS website.
Learn About Credits. While many people focus on deductions, you can get a better return on your time investment by learning about tax credits instead. This is because tax deductions reduce your taxable income dollar-for-dollar, while tax credits reduce your tax due dollar for dollar (or increase your refund by the same). Many tax credits go unused because people are not aware of them or don't keep records. But credits like the Earned Income Credit, Child and Dependent Care Credit and Education Credits can be very valuable.
Increase Tax-Deductible Contributions. If you're facing a tax bill after the year is over, you can still reduce it by contributing to an IRA. A traditional IRA reduces your taxable income dollar-for-dollar, and you can contribute as much as $6,500 per taxpayer (in 2015) as late as April 15 of the following year. You may also qualify for the additional Saver's Credit. In addition, taxpayers covered by a high deductible plan may qualify for a tax-free Health Savings Account and many employers offer a similar, tax-free Flexible Spending Account.
Keep Records. One of the easiest ways to lose out on deductions is failure to keep documentation. Gamblers should keep receipts of all bets (which can reduce your liability if you win money later). If you travel, buy equipment, or entertain clients for your business or employer, be sure to keep a log and all receipts related to those expenses. Keep track of travel to all doctor appointments and medical expenses -- even if you aren't sure you can claim them. Students and their parents should keep receipts for anything and everything related to college expenses. If you have a rental property, start a file for each unit and track all purchases and income in that.
Keep Up. Few people want to spend their time learning about taxes, but educating yourself can help you save money both in the short and long term. Peruse the IRS website for helpful information for taxpayers, sign up for updates and follow a few tax-related personal finance websites. Doing so may help you avoid having to do amendments or pay interest on errors. It can also help you learn about new credits you may qualify for or choose things (such as electric vehicles) that will benefit your taxes in the future.
By spending a little extra time learning about your taxes, keeping better records, and adjusting how you save money, you can bring home a bigger refund at the end of the year. And who couldn't use an extra few hundred or even a few thousand dollars? For more information, contact companies like HBE Becker Meyer Love LLP.