Tax season is never a pleasant experience, but there are things you can do to maximize your refund and reduce what you pay. These tax preparation near Las Vegas include claiming all available deductions and credits, contributing as much to your retirement and 529 savings accounts as possible, and keeping receipts that can be used to itemize your return.
Claim Deductions and Credits
Refunding is a great way to boost your savings, pay off debt, invest, or treat yourself. However, it would help if you planned to make the most of it tax relief services from Clean Slate Tax. Getting the biggest refund, you can means optimizing deductions, credits, and filing status. It also means planning to avoid any surprises that could impact your return in the future.
When it comes to deductions, you can take the standard deduction based on your filing status or itemize deductions that are more specific to your situation. For example, you can deduct mortgage interest, medical expenses, or charity donations. The key is to know the rules, eligibility requirements, and amounts of these deductions to maximize your refund.
Tax credits work differently from deductions in that they directly reduce the amount of taxes you owe. Some, like the earned income credit or child employee retention tax credit clean slate tax, can result in a refund even if you don’t have any taxes.
These credits are often targeted to low- and middle-income households, but it’s important to remember that Congress has the authority to change or eliminate them. Therefore, regularly check the IRS website and consult a financial professional to stay current on the most common credits and deductions. As the 2023 tax season begins, it’s time to start preparing for the upcoming changes to deductions, credits, and other rules.
Adjust Your Withholding
The IRS withholds a percentage of your paycheck for tax purposes while you work. That withholding accumulates throughout the year to cover your federal income taxes when it comes to filing. Adjusting your withholding to prevent owing taxes or receiving a sizable return is a crucial balancing act. Determining the appropriate withholding might be challenging, but there are internet resources that can assist you.
The IRS Tax Withholding Estimator allows you to input your information and determine the amount of tax to have withheld. Input your data, such as the number of dependents and the number of jobs you and your spouse hold, then answer questions based on the income you expect to receive. You can also add other income sources that aren’t subject to withholding, such as investment income and other forms of passive income.
Once you have a number in mind, it’s easier to fill in Line 4(c) of the W-4 form to have that much withheld. You can file a revised W-4 later in the year if your circumstances change. It’s a great idea to start compiling tax-related documents, including receipts and canceled checks, early. That way, you can easily pull expenses forward or push earnings back to reduce your tax liability or maximize your refund.
Make Charitable Contributions
It’s no secret that charitable giving can help reduce your tax bill. However, the rules are complex, and the impact of your donation depends on many factors.
One big factor is whether you itemize or take the standard deduction. If you itemize, your taxable income is reduced by the greater of your standard deduction or your total itemized deductions, which may include charitable contributions. The 2017 tax overhaul nearly doubled the standard deduction, making taxpayers less likely to itemize. One way to ensure you get the maximum benefit from your charitable deduction is to “bunch” your donations.
For example, if you donate appreciated securities that have increased in value since you bought them, you can avoid paying capital gains taxes and get an even larger deduction. However, you must follow specific rules and keep careful records, so it’s best to consult a qualified professional before donating long-term assets.
Alternatively, you can benefit from charity deductions in the year you deposit your assets using a donor-advised fund (DAF). After that, your adviser might gradually allocate the money to organizations by your preferences. Older high-income taxpayers who wish to lower their taxable income and avoid hitting Medicare’s higher premium level may find this technique especially useful. Additionally, it enables them to benefit from an increased standard deduction in 2020.
Save Your Refund
A tax refund can be a great opportunity to start over or hit the reset button on your finances. However, before you spend your refund on frivolous purchases, experts agree it’s best to prioritize savings and debt payments. Create or replenish an emergency fund. Experts recommend keeping the fund to about three months’ worth of living expenses. Pay down debt, either by chipping away at loans with high-interest rates or eliminating smaller balances first. If one of your goals is to stop renting and buy a home, use your refund to save up for closing costs and a down payment.
If you’re aiming for a big tax refund next year, consider adjusting your withholding now instead of waiting until the last minute. By increasing your withholding throughout the year, you’ll pay in more tax with each paycheck and avoid getting too much of a return – which can feel like free money but is an expensive loan to the federal government.