Tips to get the maximum tax refund
(Posted on Aug 11, 2020 By M.K.B)
While filing for taxes, you should think about how to get the maximum tax refund at the end of the financial year. This will help
you with managing your money effectively. There are numerous tips available for you to get a maximum tax refund. Here are some of
the most useful tips out of them. Just take a look at the tips and see what you can do to end up with receiving a bigger tax refund.
Increase overall withholdings - If you are a person who works for a company full time, you are provided with the chance to increase your tax refunds. You need to think about filling out IRS W-4 Tax form. Based on the information you use to fill this form, the amount of money withheld from the monthly paycheck will be determined. This amount of money will be paid on personal income taxes. The calculation is dependent upon the total number of exemptions that you go ahead and claim. When you claim more exemptions, less money will be withheld on taxes.
As a person who is looking forward to getting a bigger tax refund, you should make a request to change the W-4 form. You can make this request from the human resources department of your company. Once you reduce the total number of exemptions available within the form, you will be able to withhold a large amount of money from the paychecks in every single month. As a result, you can end up getting a bigger tax refund.
Deduct the donations - You must be donating to charitable causes throughout the entire year. It is important to keep track of them and deduct the total amount reflecting all those donations. This deduction should be made from the taxable income. Once you do it, you can increase the amount of money that you are getting along with the tax refund check.
You will not just be able to deduct the cash donations that you are making on charity. It is also possible for you to deduce the cash value of the other physical donations that you make, such as electronics, clothing and real estate. Even if you drive in your own personal car to contribute towards charitable causes, you can reduce the mileage you use.
In order to get this tax refund, you need to ensure that you are itemizing all the donations. Moreover, you should keep the receipts along with you. All the legitimate non-profit organizations will provide you with receipts. It might not be possible for you to get all the money that you spend on donations. However, you can receive a considerable percentage as a tax refund.
Don’t ignore the kids - You should not ignore the kids at the time of filing taxes. If you can include the dependent kids, you will be able to end up with getting a bigger tax refund. In here, you have two different methods to include your kids. You can include them under Child Tax Credit or under a personal exemption. During the recent past, the Federal Government took appropriate measures to double the amount of money that is paid on the tax credit. It was previously $1,000, but now you will be able to receive a tax credit of $2,000 for every dependent child that you have. However, the children should be either 16 years or younger to receive this tax credit.
As a parent, it is important to notice that child tax credit is much valuable when compared to a personal exemption. That’s because you will be receiving it as a credit, instead of a deduction. It will be deducted from the final tax bill and you will not be able to see any deductions from the taxable income. The best thing about this tax credit is that it is a type of refundable credit. In case if the credits are bigger when compared to the tax bill, you are provided with the chance to keep change along with you.
Reduce all the dependent care expenses - You will have to spend a considerable amount of money to take good care of dependents. They include your kids as well as your parents. You can use these dependent care expenses as a deductible as well. Some of the parents seek the assistance of others to take care of kids while they are at work. The amount of money you spend on that can be reduced from your tax liability. Along with that, you can enhance the tax refund that you receive via Child and Dependent Care Credit.
The Child and Dependent Care Credit are also reduced from the final tax bill. Hence, it will not be reduced from the taxable income. In order to get this credit, you need to make sure that you are making a payment for someone to take care of your child. The child should be under 13 years of age. If your child is physically or mentally impaired and if he is over 13 years, you can go for this as well.
Increase all the IRA contributions - An excellent method available for you to enhance the tax refund is to go ahead and increase the overall contributions that you are making to the retirement fund. This can deliver some additional benefits to you as well. For example, you can save more than enough money for retirement. On the other hand, all the money that you contribute towards IRA is cable of reducing your total taxable income. When your taxable income is low, you will only have to spend a lower amount of taxes. When the amount you owe is less, you can end up with getting a better tax refund.
However, you must ensure that you are not making any IRA contributions near the deadline. On the other hand, you should be aware of your limits as well. As of 2020, you will be able to reduce a maximum of $6,000. If you need any additional clarifications on this, you can think about consulting a tax professional. Then you can get all the information you want.
Refinance the home - Interest rates have dropped and this is the high time for you to think about refinancing your home. Since the interest rates are low, you will be able to experience a reduced mortgage payment as well. Along with that, you are provided with the chance to increase overall tax returns.
Upon refinancing the home, most of the monthly repayments that you do during the initial months will be paid on the interest. This may not look appealing to you. However, you need to note that the interest amount is tax-deductible. Therefore, you are provided with the chance to reduce the total amount of money that you are spending on the taxes and file.
You will have to consider numerous factors before refinancing the home. If you can secure a great interest rate, you can go ahead and do it.
Go green - Going green will not make you contribute positively to the environment. It can also help you with getting a better tax refund at the end of financial years. Most of the green tax credits introduced within recent years are still valid. They will go on until the year 2025. Hence, you just need to take a look at the tax credits and grab the maximum benefit offered out of them.
For example, the Residential Renewable Energy Tax Credit will provide you with the chance to claim a tax credit up to 30% of the total the cost you invest in getting a solar panel installation project. Likewise, you will also be able to get tax credits when you upgrade the solar water heats installed at homes as well.
Another way to get an excellent return out of this tax credit is to purchase a plug-in electric vehicle. If you can purchase a Chevrolet Bolt or Nissan Leaf, you have the chance to experience this benefit. For most of the electric cars available out there for sale in the United States, IRS will offer a tax credit, which would worth up to $7,500. However, you need to note that the tax credit you will get for Toyota hybrid cars and Tesla electric cars is relatively low. Even as such, it is worthy to take a look at the tax credits and get the most out of them.
Make sure that you keep all these strategies in mind and go for the best ones out of them, so that you can receive a maximum tax credit.