Tax returns may seem like a bonus, but it's important to remember that it's your money. Filing your taxes is a process of telling the federal government how much money they owe you from over-taxing your income over the previous year. Of course, there are scenarios where you may owe money.
If you are expecting a refund, here are tips to look at before filing to increase your tax returns.
There are only three types of filing statuses: single, married filing jointly, and head of household. If you’re single, then it’s an easy decision as how you need to file. It gets a little trickier, though, if you’re married or have dependents.
In most scenarios, filing with dependents is beneficial for maximizing your tax return (more on that later). If you’re married, it still may not necessarily be the best option to file jointly with your spouse. You could potentially be missing out on benefits you may have from things like business expenditures. Make sure you evaluate this before choosing your status.
Many people don’t seem to know or act on this amazing opportunity to reduce your taxable income, therefore increasing your refund. You can contribute money to a 401k or traditional IRA account and it won’t be counted towards your taxable income when you file your taxes.
The IRS actually encourages retirement contributions so much so that they allow you to make contributions to those two types of accounts up until April 15th and have it still count for the previous year. That means that you can stash extra cash at the last minute in a retirement account if you want to have less taxable income on your 2018 taxes. Not only does it help your refund, but your retirement as well.
Dependent Care Credit
A tax credit is available for those who claim a dependant on their taxes and meet certain parameters. You can claim up to $3,000 in expenses for a single dependant on your taxes and up to $6,000 for two or more dependants. The credit returned is based on a percentage of those expenses.
This applies to those of you who have a child under 13 years old or someone who lives with who is incapable of caring for themselves (this can be a spouse if applicable). You also can’t have used the services of a caregiver to be eligible to make this claim.
Here is another tax credit that’s available for low- to moderate-income people, and it’s especially beneficial for those with children. While you can claim an EITC without children, the return is much smaller.
For those seeking the credit with children, you’ll have to fill out an additional Schedule EITC form along with your 1040A or 1040 that provides information on your children. That information includes their basic information, their relationship to you, and shared residence information.
There are many other small credits you can claim on your tax returns. Business expenses, travel for work, and charitable contributions are all examples of expenses you may be able to leverage for a greater tax return. You may also get a benefit if you purchased a house. At the very least, you should be using a tax return software that guides you through the process and helps you identify small things that you can claim. If you have more complex questions, it may be best to consult a tax professional.