It is common for taxpayers regardless of financial status to get the most tax refunds or pay only what we owe.
So when tax season comes around, people are always scrambling around to be in the best position to pay the least taxes. However, because not everyone is closely familiar with the regulations, many end up paying or owing more than what is due. The following tips are not an avoidance of responsibilities, rather it’s properly identifying everything you own and knowing its eligibility for a tax refund.
Here is how you can get the most out of your tax returns.
You might want to consider your status when filing for your tax return. Most couples file jointly because it’s easier and more convenient, but there are instances when it’s better to file separately because you’ll get more benefits. One example of the benefits of filing separately is when one has medical expenses, including but not limited to COBRA when one loses their job. These expenses can be deducted from your taxes. The other is for dependents.
The law allows for $2,000 tax credit for every child below 17 years old and can be claimed if filed with a gross income of less than $200,000 annually. This figure could be larger and ineligible if the couple filed jointly.
But not all should do it, as there are some benefits from filing jointly that will be forfeited. The best way to determine how to go about it is to calculate both ways and see which one has the better advantage for your situation.
Reduction Taxable Income
You will need to embrace all deductions you’re eligible for, many people leave a lot on the table because they either don’t want to go through the filing process or they are not informed. The following are lesser-known tax deductions that you might want to take into account:
There are certain conditions that can allow you to take up to $2,500 deduction of your student loan interest. If your parents are paying for your student loan interest, you can claim the deduction provided they don’t claim you as a dependent. You can also claim the interest loans that you paid with the same refund mentioned above. If you’re married, you might want to file jointly if you want to claim the deduction provided that your spouse is not someone else’s dependent. This is one of the considerations about your filing status.
If you work from home with a dedicated workstation (it doesn’t have to be a separate room), you can enjoy some benefits of writing off some of your home-related expenses. The IRS allows home office deduction if you regularly work from a designated space in your home. The perks include exclusions on a portion of your rent, insurance, utilities, home essentials, and others. These exclusions are especially valuable if you’re living in an urban area where taxes are high.
Casualty, Disaster or Theft
If a disaster (declared by the POTUS) has claimed some of your goods or if you’re a victim of theft, you are eligible for tax deductions on your losses. One good example was in 2018 when tax relief was provided by the federal office for the people who lost their houses and possessions due to Hurricane Florence. The IRS usually publishes the requirements to be eligible for the deductions. It’s advisable to pay attention to these announcements when you’re looking to claim for a tax refund for the damages sustained.
The law allows for tax deductions when you give to recognized and qualified charitable organizations. Make sure to keep the receipts of the money you donated as well as the out-of-pocket expenses that you paid for your donations. You don’t have to pay a large amount every time, a small donation here and there can quickly become a significant benefit.
One of the most effective ways to reduce your taxes is through tax credits. They are actually the income that you owe and not the income that you’ll have subtracted from, as deduction goes.
This is meant to help those from low or moderate-income families. If you have three children, you could get up to $6,550 of tax credits.
Child and Dependent Care
If you’re a single parent or caring for a sick spouse, you could get up to $6,000 qualifying expenses that you can credit.
The American Opportunity Credit
You can get up to $2,500 of credit for qualified expenses for a student taking higher education.
Whether you’re a full-time employee or own a business, the IRS has certain regulations that you have to follow when filing for your taxes. You must regularly refresh yourself with the rules because, one, it’s the law and, two, may gain some insight on how to maximize your tax returns.