6 Ways to Maximize Your Tax Return
Tax time doesn't have to be a dreaded time of the year if you know how to maximize your refund. Taking simple steps to ensure filing status and deductions are in place can take the stress out of filing an annual return.
It may seem logical to claim four allowances on your W-4 form when you start a new job, but just because there are four people in your household, it doesn't mean you have to claim this number for your withholding. Increase your odds of receiving a bigger tax refund by dropping the number of exemptions you claim. More taxes will be withdrawn from your paycheck, but in the end, you may receive a hefty tax refund check.
Seek Out Deductions
Many people overlook potential deductions that can increase their annual tax refunds. Track and organize receipts throughout the year to ensure you are not missing possible deductions, such as expenses during a job search or mileage for volunteer work. You can deduct moving, storage and travel expenses for a new job that is more than 50 miles away, as well as charitable donations such as cash, clothing or furniture.
Review Filing Status
Standard deduction amounts vary based on filing statuses. People who meet the criteria for head of household filing status often receive a larger deduction than those filing as single taxpayers. In addition, married couples filing jointly can increase their tax refund with a higher standard deduction than those who filed separately as a married couple.
Make IRA Contributions
Contributing to an IRA can increase the amount of your tax refund because the more you contribute to an IRA, the less taxable income you have to claim. Limits for contributions vary each year, but even small contributions throughout the year can significantly impact the amount of income you may need to claim.
Refinance the Mortgage
Interest paid during the year on a home mortgage is tax-deductible and can increase the amount of your tax refund. Refinancing a mortgage allows the payment process to start over, which means that a greater portion of the mortgage payment consists of interest. You can then deduct a larger amount of interest from your tax return when filing.
Start a Home Business
Self-employed individuals who run a small business from their home can deduct portions of home expenses on their annual taxes. For example, a percentage of the mortgage, telephone and Internet service and utilities may be tax-deductible when claiming a home business, which ultimately increases the amount of the tax refund.
Although tax season is not necessarily a joyous time for most filers, if you have taken steps to maximize your return, it may take the dread out of the filing process. Make financial and tax choices throughout the year that can leave you anticipating the April deadline.