Taxes are a topic of great debate, but when it comes to tax prep season, I’m sure everyone would agree that they don’t want to pay more taxes than they have to. If you’re trying to get a refund, you want to make sure to get the most out of your deductions and tax credits, so you can get more money back.
If you file your own taxes it’s a good idea to take a free tax preparation training course. Whether you are filing taxes this new year as a business or individually, there are some great ways to ensure that you get the most out of your return this year.
Here are 5 tips to help you get the most out of your tax prep:
1. File Early
2018 Filing Begins on January 23rd, but many people will wait until April 17th this year and file at the deadline. It can be beneficial to file your taxes as early as possible. One common reason to begin tax prep and file taxes early is to receive a faster refund. Filing your return electronically with direct deposit into your bank account is the fastest way to get your refund.
If you owe a balance to the IRS, early filing is a great way to buy yourself time to pay up. If you file your return in the middle of January 2018, you do not have to pay taxes you owe until April. Preparing your Form 1040 early will give you time to arrange your payment. This extra time is particularly helpful to taxpayers who need to find out exactly how much they will owe the IRS.
2. Itemize your Deductions
United States tax law dictates that itemized deductions are expenses that individual taxpayers can claim on federal income tax returns in order to decrease their taxable income. Itemized deductions can include home mortgage interest, property taxes, state and local income
taxes, investment interest, medical expenses, donations to charities and many other qualifying deductions.
By including all applicable deductions, a business owner can substantially reduce the amount of taxes that they have to pay to the IRS. People who file individually or who file as self-employed can, in some cases, increase the amount of their refund substantially, sometimes by hundreds or even thousands of dollars. Itemized deductions are a great way to get the most out of your 2017 return.
3. Claim a Dependent
According to the IRS, “A dependent is a person other than the taxpayer or spouse who entitles the taxpayer to claim a dependency exemption. Each dependency exemption decreases income subject to tax by the exemption amount. A taxpayer cannot claim a dependency exemption for a person who can be claimed as a dependent on another tax return.”
Essentially, anyone who you provide for, or who is dependent upon you for the provision of their basic needs. This can be a child, spouse, or other relatives or nonrelative in your household, so long as the person’s yearly gross income does not exceed $4,050. If you have anyone in your household who is dependent on your income, it’s a great idea to claim them on your return.
4. Utilize Refundable Tax Credits
Refundable tax credits can greatly reduce your tax liability to below zero and will allow you to receive a tax refund. If you qualify for a refundable tax credit in an amount larger than the tax you owe, you will receive a refund for the difference.
Refundable tax credits are tax credits that are not limited by the amount of an individual’s tax liability. In most cases, a tax credit can reduce an individual’s tax liability to zero. Refundable credits go beyond this and can be considered the same as a payment. The larger of a tax credit you qualify for, the greater the chances are that you will receive a refund, and if you file with a w-2, it can help you get an even larger refund.
5. Contribute to an IRA
According to Fidelity Mutual, “An IRA is an account set up at a financial institution that allows an individual to save for retirement with tax-free growth or on a tax-deferred basis.”
There are 3 types of IRA’s. These Are know as Roth, Traditional, and Rollover IRA’s. Unlike other accounts, these are not taxable.
Whether you choose a Traditional or Roth IRA, the tax benefits allow your savings to potentially grow far more quickly than a taxable account.
It is estimated that you may need up to 85% of your pre-retirement income in retirement. By contributing to an IRA, you can greatly increase your savings in a tax-free manner.
Conclusion
While these 5 tax prep tips are great ways to get the most out of your taxes this filing season, they aren’t the only methods of doing so. You’d be surprised how many hidden deductions are scattered throughout your yearly expenses.
What are some helpful tax time tips that you have come to rely upon? Leave us a comment in the section below.