Expecting a tax return is quite possibly one of the best feelings that you can have - at least as we get closer to tax day in April. Getting a substantial refund means that you have an opportunity to pay off old bills, purchase a new wardrobe or buy that plane ticket to Puerto Rico you’ve been eyeing for so long.
However, did you know that there are a number of (legal) ways you can increase the amount of money in your refund? For example, you can...
Increase Your Withholding
The first step you can take to increase the amount of your tax return is to increase the amount of money that is withheld on your W-4. A W-4 determines how much money is withheld from your paycheck each pay period and also how much money is paid toward your personal income taxes. The calculation is based on the number of exemptions you claim. The more exemptions you claim, the less money is withheld.
Deduct All Donations
Deductions, things like cars, clothes, furniture and technology can substantially increase the amount of your tax return. However, donations must be made to a nonprofit that can prove 501(c)(3) tax status. Most charities clearly state if they’re 501(c)(3) nonprofits. You must also make sure to keep the receipt to verify the items were actually used as a donation. Additionally, there may be a limit to the amount of money you can deduct from your tax return based on the items you donate.
List All Your Professional Expenses
Certain employers require their employees to purchase things they may need to help them complete the task at hand. This could mean anything like the latest industry magazines that keep employees up to date on the hottest business trends, travel expenses and phones or laptops. Usually a company will reimburse employees for those expense, however the company does not, it can be deducted from the tax return.
Review Your Filing Status
Your filing status can determine how much money you receive on your tax return. Filing status can also vary depending on if you file as single, head of household or married. Sometimes filing as married can yield greater tax benefits, but married couples might want to avoid filing together if one partner has large amounts of student loans or medical debt.
Increase IRA Contributions
Besides helping you save for retirement, one of the best ways you can increase the amount of money in your tax return is by increasing your IRA contribution. Placing money into the IRA lowers the total taxable income because it comes off the top. The more you contribute to the IRA, the less income is subject to taxes.