Posted on: 29 April 2015Share
Now that tax season is over and you're breathing a sigh of relief, you are either happy or unhappy about the final outcome of your tax return. No matter what your emotions are right now, you can find ways to make your tax burden lighter next year. Even though there are always changes to the deductions and credits that you're entitled to, you can still make plans to get a bigger refund, or to have more money in your pocket next year. This guide explains three things you need to do right now to help your tax situation.
Review Your Tax Breaks
Look over your tax documents carefully, paying special attention to tax deductions or credits that you were not able to claim this year. Each year, taxpayers miss credit opportunities, because they don't know they exist. Some of these include:
- credit for major purchases
- credit for eco-friendly windows
- credit for solar heat or hot water
- credit for an IRA or a 401k
Set Up an IRA or Invest More
If you don't have access to a 401k to automatically save a portion of each paycheck, open an IRA. The Internal Revenue Service (IRS) provides a tax credit each year called the "savers credit", and you could have a portion of your owed taxes reduced simply by saving money for retirement.
Review Your Withholdings
When the payroll department of the company you work for cuts your paycheck, they will send a portion (a percentage that you designate) to the IRS to pay your federal income taxes. The amount is dependent on whether you file single, married, married but withhold at a higher single rate or exempt, plus the amount of dependents you claim.
It's rare that you would file exempt, unless you are absolutely sure that you will not owe any federal taxes at the end of the year, or if you're a member of the clergy. However, even if you are married, you might want to fill out a new W-4 form and check the "married but withhold at a higher single rate" box. This will mean that more money comes out of your paycheck, but you'll get a bigger refund at the end of the year, if you file your taxes as "married."
Even though you might want a nice refund, if you're having problems making ends meet, check the amount of dependents you're claiming. You don't have to claim any dependents on your paycheck if you want more money. The trick is to find a balance that prevents you from sending too much in, only to have it all return at the end of the year, and having enough money to pay your bills.
Sending a lot of money into the IRS throughout the year is the same thing as giving them an interest free loan. You're better off only getting a small refund and using your money when you want or need to throughout the year instead.
Once you get everything set up, you can make plans to take more credits, start investing or receive a smaller or bigger refund. Ask a CPA like Amos Maney & Payne CPA's LLC about other ways to make the most out of your tax return, so that you can help your tax dollars work for you.