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Tax season is here, and with inflation still a factor, Americans are eager to maximize their tax refund and get as much money as possible back into their pockets. Luckily, there are some professional tips that can help us better understand how to make the most of our return. Take a look at these insights before you file your 2023 taxes—you might be surprised at what you can claim.
Tax Refund:
1. Itemize Your Deductions
Most taxpayers file simple standard deductions because they are simple, predictable, and do not require much math or calculations. An itemized deduction might be better if your standard deductions are less than your itemized deductions. Look at your mortgage interest, out-of-pocket medical expenses, charitable donations, and property damage due to a natural disaster. You have an easy answer if these equal more than your standard deduction.
2. Double Check Your Filing Status
Whether married or single, your filing status can affect your returns during tax time. A single person can benefit from a different tax bracket and a larger standard deduction if they file as a head of household, with children or older family members as claimed dependents. Also, married couples can file separately if one partner makes significantly less than the other because they can take advantage of special credits.
3. Make a Retirement Contribution
Take advantage of contributing to your 401k or IRA before tax season to qualify for a tax deduction. You can add as much as $20,000 to a 401k and $6,000 to an IRA. These contributions can seriously impact your deductions at the end of the year, meaning more money back in your pocket come filing season.
4. Claim Tax Credits
Before you file your taxes this season, check and see if you qualify for any available tax credits. For example, for every child under 17, you can file a $2,000 credit per child. Additionally, you can claim up to 35% or $3,000, whichever is more on your yearly childcare costs. There are also plenty of tax credits for driving an electric vehicle. Look out for those credits if you or a family member drives a hybrid or an electric vehicle.
5. Take Advantage of the Home Office Deduction
Remote workers can take advantage of writing off your home office as an expenditure. Rent, mortgage interest, property taxes, and utilities can be some write-offs. That computer on your dining room table just became your home office.
6. Deductible Business Expenses
This differs from the Home Office Deduction but benefits people working from home equally. Business expenses include office supplies like a computer or printer, travel expenses, and other fees needed to do your job adequately. Make a list and deduct as much as possible to optimize your reward.
7. Make Energy-Efficient Home Improvements
Upgrading your home with appliances that are considered energy efficient can get you an extra few bucks on your tax return. These residential energy credits can directly reduce your tax bill. Installing those solar panels will eventually pay for themselves over a few years.
8. Contribute to Your Health Savings Account
If you are over 55, you can contribute to your Health Savings Account as much as $3,650 with a combined contribution of $1,000. Families can deliver as much as $7,300, all tax deductible. These are all applicable on high-deductible health plans with an annual deductible of $1,400 for a single person or $2,800 for families.
9. Timing Is Everything
Look at your payment timeline to plan the best time to file your tax return. Paying your mortgage for January in December can be a deduction. Make your charitable donations in December as well to add to said deductions. Also, if you are self-employed, buy all your needed supplies before the New Year to take advantage of those write-offs.
10. Harvest Investment Losses
This technique of selling off stocks, bonds, and mutual funds that have lost value is used to offset the taxes on winning assets. You can claim losses against your gains, and if you have more losses, you can use $3,000 to reduce your taxable income.
11. Defer Bonuses and Incomes
If you plan to retire, putting you into a lower tax bracket due to lower income, you can easily defer your bonuses and income so you don’t get a tax hit. If that bonus keeps you in that higher tax bracket, this is a no-brainer.
12. Utilize the Gift Tax Exclusion
A person can gift a certain amount of money to a family member without taking a hit to a person’s lifetime estate. Gifts like these are allowed by the IRS without a fee. These gifts can lower your taxable estate and save you from future estate taxes.
13. Optimize Education Expenses
For all the parents with children in college, paying the spring semester tuition early can give you extra tax credits. The American Opportunity Tax Credit offers excellent tax credits for colleges and trade schools.
14. Find the Best Program
There are many programs for filing taxes. Whether filing a simple return or taking advantage of these tips, you can find the cheapest option. Shop around before you commit to the program you choose. Some simple files are free!
15. Work With a Tax Professional
There is no better way to maximize your tax return than to work with a professional. They have been doing this job for years, so they know all the ins and outs we will never understand. They pride themselves in getting their customers all the money they deserve, so why wouldn’t you seek them out?
Source: taxfyle
Source: Experian
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