9 Ways To Maximize Your Tax Refund
Article Published by: petoskeynews.com
Do the words “tax return” send shivers down your spine because you always end up with a gigantic headache and little or no tax refund at the end? Maybe the problem is in preparation and planning – or lack of it. Tax law is complicated, and it takes a coordinated, sustained effort to optimize your refund. Let these nine tips help you acquire the best refund possible.
1. Don’t Delay – The IRS doesn’t start processing forms for the 2017 tax year until January 29, 2018, but that doesn’t mean you have to wait until then – or worse, until right before this year’s deadline of April 17. If you need motivation, think of what you can do with a tax refund windfall. The sooner you file, the sooner you can put your refund to use. Two other reasons to avoid procrastination: the earlier you begin, the more time you’ll have to locate any missing documents and data; and the sooner you file, the harder it is for a tax identity theft to target you.
2. Contribute to Retirement Plans – Retirement plans allow you to build a tax-deferred nest egg while lowering your taxable income for the year. Max out your 401(k) and traditional IRA contributions if you can. The limits for a 401(k) are $18,000 plus an extra $6,000 catch-up contribution if you are over 50. IRA limits are $5,500 with a $1,000 catch-up contribution.
3. Review Possible Deductions – The new tax law will raise the standard deduction in 2018, making it less likely that itemizing makes sense. However, the taxes you file this year are for tax year 2017, meaning the existing deduction rules still apply. Review the itemized deductions in the Schedule A instructions, and look for the “above the line” deductions on Form 1040 – these deductions subtract from your adjusted gross income and you don’t have to itemize to take them.
4. Check Qualification for Tax Credits – Pay special attention to any tax credits for which you qualify. Tax credits are even more valuable than tax deductions because they subtract directly from your tax bill, while tax deductions only reduce your tax bill in proportion to your tax rate.
Refundable tax credits are the most valuable of all, as they can provide a refund in excess of the tax that you owe. Most credits, like the Earned Income Tax Credit, are targeted at helping low-income taxpayers who need the most help.
5. Get Organized – Do you have all of your tax documents in order? Start with the forms necessary for this year’s filing – W-2 forms from employers, all varieties of 1099 forms that show income and assets, your 1095 form for proof of health insurance, and last year’s tax form. If you plan to itemize deductions for things like charitable contributions, make sure you have the necessary receipts and paperwork to back up the deductions.
6. Use Helpful Software – If you plan to do your own taxes, there are many fine software packages to choose from that can guide you through the filing process. Check into your options, look for online reviews to see how previous customers have fared, and select the software option that best fits your needs and cost limitations. If you can’t afford any software, the IRS Free File system may be able to help.
7. Review Upcoming Changes – The recently-passed Tax Cuts and Jobs Act may not affect your 2017 taxes that you are preparing to file, but it is almost certain to change them for 2018. Take the time to review summaries of the changes and see how they will affect your 2018 filing. You may need to make changes during the year to optimize your results in next April’s filing.
8. Adjust your Withholding – Review your withholding rate to make sure you are paying the right amount of taxes throughout the year. That’s especially important given the new tax brackets that take effect in 2018.
While a refund is nice, don’t go overboard in your withholding. A refund is essentially the government returning your overpayment in taxes throughout the year. You could be putting that money to work yourself instead of letting the government hang on to it tax-free.
9. Seek Help If Necessary – Tax laws can be confusing. If your tax situation is complex and you don’t have the time, patience, or ability to maximize your tax return, seek the advice of a competent tax professional – but do your research first and be skeptical of broad claims. Anybody who can guarantee you the highest refund without reviewing your individual situation is probably stretching the truth.
Armed with these tips, you can prevent those tax-time headaches with the best cure possible – a nice fat tax refund. It’s more effective than aspirin.
ABOUT MICHAEL SMERIGLIO:
Michael Smeriglio III is a financial specialist. A licensed CPA since 1985, Mike has been providing tax preparation services to individuals and businesses for more than 30 years through his firm located in Greenwich, CT.