If you're one of those people who files their tax returns in January, you're probably expecting a refund. For many taxpayers, a tax refund feels like a windfall, and they treat it like one, earmarking the funds for a special vacation or shopping spree. Following a checklist for getting the most money back on your tax return will help ensure that you get more money back on your taxes.
Deductions reduce the amount of your taxable income. The lower your taxable income, the less you pay in taxes and the more you receive as a tax refund. The IRS advises taxpayers to itemize deductions if they incurred and paid a large amount of uninsured medical and dental expenses during the tax year. Itemizing deductions usually pays off when the taxpayer paid home mortgage interest or real estate taxes, if there were significant unreimbursed employee business expenses, uninsured theft or casualty losses, or if the employee made large, tax-deductible contributions to charity. It's a good idea to use "Schedule A, Itemized Deductions" as a checklist to ensure you claim all the deductions you are entitled to.
Tax credits can help you get back even more money than tax deductions. Tax credits are a dollar-for-dollar deduction from the tax you owe. Some of the credits that may be available to you are the Earned Income Credit, the Retirement Savings Contributions Credit and the Child and Dependent Care Credit. Some tax credits, such as incentives for first-time home buyers or adoptive parents, may be available only for limited periods of time.
Some taxpayers can reduce their taxable income by contributing to a tax-deductible, qualified Individual Retirement Account. You have until April 15 of the year following the tax year-end to make retirement account contributions that are tax deductible. You may withdraw the contributions after you reach the age of 59-1/2 years, and you must pay taxes on the contribution and their earnings as you withdraw them. If you withdraw funds from a qualified IRA before you reach age 59-1/2, a penalty of 10 percent of the withdrawal will be assessed against you in addition to the tax you owe.
An easy way to ensure that you get more money back on your taxes is to ask your employer to withhold more money for your federal taxes than is indicated for your situation. Generally speaking, withholding is based on the number of people you claim as your dependents, or allowances. You can adjust your withholding by decreasing the number of allowances in your W-4 form or by directing your employer to withhold an additional amount from each paycheck.
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- List of Things You Can Claim on Your Taxes for Dependents
- How to Get More & Bigger Income Tax Refunds
- Advice on How to Reduce Taxes
- Deductions on a Joint Tax Return
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- Can You Still Contribute to an IRA When Collecting From an IRA?
- W4 Form Explained