Tax season is that dreaded time of year when people close their eyes before finding out whether they will receive a refund or have to pay more on their income taxes. But it doesn't have to be a guessing game. There are ways to ensure that you always get a tax refund. In fact, here are 5 little tips that will help you get even more money back the next time you are doing your tax return.
- Make donations. Giving your money away may seem counterproductive, but it has its benefits in the long run. Even giving small amounts to various charitable organizations can really add up throughout the year. But it is important that you get a receipt outlining the value of your donation so you can prove your generosity to the tax man. And it doesn't have to be only money. Your local library often accepts donations of books and media, and they can provide you with a tax receipt upon request. Likewise, a donated vehicle can net you hundreds of dollars on your tax return, often more than you would get for it at a junkyard. Consider what you can give away and you'll be surprised the return it can bring you. Helping a good cause can actually save you money!
- Make your home greener. You can claim a tax credit equal to 30% of the cost of your energy-saving home improvements. These green tax benefits can include new windows and doors, and energy-efficient heating and cooling systems, up to $500; or get a 30% tax credit on installation of alternative energy devices such as solar hot water heaters and geothermal systems with no dollar limit.
- Maximize your retirement contributions. Money allocated to your retirement fund (traditional IRA or 401K) is tax-deferred. You are not only saving money for your retirement, but also lowering the amount of your income that can be taxed now. (You will be paying taxes on your retirement savings in the future, but presumably at a lower rate than your current income). So the more you put it, the more money you'll get back on your return. Pretty simple. If you find lump sums too difficult, consider automatic weekly withdrawals from your bank account. Often, your employer will also give you the option to have contributions taken directly from your paycheck. Take advantage of this!
- Deduct your home office. If you work at home and you're self-employed, you're likely eligible for this deduction. While there are certain criteria that define a true home office, many people take advantage of this every year. Formulas for figuring out your deduction are available online. Don't be one of the uninformed ones who don't!
- Reinvested dividends. If you have money invested in a mutual fund that automatically reinvests your dividends, the tax basis of your fund holdings increases each time a dividend is paid. This reduces the capital gains you are taxed on. The reinvested dividends can be subtracted from the taxable capital gains you earn from redeeming shares in the fund.
- Job hunt spending. Reinventing yourself after a layoff? Some of your job-search expenses (including food and lodging when traveling to find a new job, employment agency fees, and the cost of printing resumes and business cards) are tax-deductible as long as they are under 2 percent of your adjustable gross income.
- Get some money back from college. If you've got a child in college, you're eligible to claim a certain amount of their tuition. It's tax-deductible. Even some personal educational expenses are tax-deductible (for example, if you decide to take a night course, you can claim the tuition and textbook fees). Even some student loans have portions that are tax- deductible. There are several different government programs available, including the Lifetime Learning Credit and the American Opportunity Tax Credit. Check them out, but note that some of them may expire subject to congressional re-approval.
- Consider a child-care credit. A child-care credit is different than a deductible expense. The amount you spend on childcare is deducted from your taxable income, dollar for dollar. With a lower taxable income, you'll be taxed on less, and that's not something to look lightly on. It can add up to thousands of dollars over the course of the year.
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There are many tricks of the trade when it comes to getting the most out of your tax return. Of course, make sure you have everything well-documented so there'll be no trouble with the tax man. And while these are only a few tips, they should give you an idea of the types of steps you need to take now in order to see more money in your pocket next spring.