Eeven though Americans may disagree on how their taxes are used by the government, many of us want to pay as little as possible during tax time or even increase our refunds. These tactics go beyond the obvious to provide you proven methods reduce your tax burden.
Analyze your filing status again
Selection of a file status is one of the first choices you have to make when filing your tax return, and if you’re married, it can impact your refund amount. While over 96% of married couples file a combined return each year, it’s not always the best choice.
The loss of certain deductions and credits that are available to joint filers when filing separate returns is a downside of doing so. To optimize your chances of receive a refund, think carefully about your options. In addition, both spouses must itemize their deductions or take the standard deduction. There is no mixing and matching of the two answers.
If they qualify, unmarried taxpayers claiming an eligible dependent can frequently reduce their tax liability by declaring as Head of household.
Many taxpayers caring for elderly parents are unaware that they can claim head of household status. Even if your relative does not reside with you, you can probably file as head of household if you are responsible for more than half of their financial support.
Embrace tax deductions
There are several deductions that you may not be aware of, and many of them are often overlooked. Your tax refund could vary significantly depending on the deductions you are entitled to.
State Sales Tax: You can determine how much of your state and local sales taxes you can deduct using the IRS calculator.
Dividends reinvested: Although this is not a deduction in the strict sense, it can nevertheless reduce your overall tax burden. Include this in your cost basis when mutual fund dividends are automatically reinvested. By doing so, you may be able to reduce your taxable capital gain when you sell your shares.
Direct Charitable Contributions: Not all significant contributions are eligible for write-off. Also keep track of minor acceptable expenses, such as the ingredients for the delicious cake you donated to the bake sale. How quickly a few small charitable donations here and there can add up may surprise you.
Interest on student loans: You can deduct this expense even if you did not pay for it yourself, provided that you are the person responsible for it. According to recent regulations, if someone else pays the loan, the IRS will consider that you received the funds and used them to settle the student loan. You would qualify for the deduction if you met all the requirements.
Care of children and dependents: For 2022, the child and dependent care credit will allow you to deduct up to $6,000 of eligible expenses.
Maximize your IRA and HSA contributions
For the previous tax year, you have until the deposit deadline to open or contribute to a traditional IRA (unless the deadline is extended due to a weekend or holiday) . This gives you the choice to open the account using your refund after filing your return earlier and claiming the credit.
Remember that timing may increase your tax refund
Adhering to the schedule increases the likelihood that taxpayers will receive a higher return. Look for gifts or payments you could make before the end of the year that will reduce your taxable income.
Become a tax credit expert
Because tax credits are a dollar-for-dollar reduction in your taxes, they generally work better as refund boosters than as deductions. You can deduct $100 from your taxes if you receive a $100 credit. Many Americans don’t claim tax credits, which costs them money.
You may be able to claim Beneficial Education Credits if you are a student or help support a child in college.