How to Maximize a Tax Return: 8 Tips for Your Best Return Yet
Are you ready to file your tax return? No one wants to be losing vast amounts on tax, and what everyone really wants is a great tax refund. However, to get the best refund you need to know what options are available.
There are a number of ways to get the largest tax return you possibly can. Below, we give 8 tips on how to maximize a tax return.
1. How to Maximize a Tax Refund 2021 With Planning
Saving money on tax is harder to do retrospectively. If you start planning at the beginning of the year, you can work with predicted earnings to plan deductions and expenses. All of this can help you gauge, and change, the tax that you will have to pay at the year-end.
The best way to do this is with a professional. They will have access to software that can evaluate your changes. This can help you identify ways in which to lower your yearly bill.
2. Green Energy Can Lower Your Bill
There are a number of tax return tips related to green energy that is running until 2025. Many of the schemes use non-refundable credits. This means that they are deducted from your bill, though they won’t result in a tax refund themselves.
These schemes mainly come through energy usage and transport. For example, you can get a tax credit of $7,500 if you buy a plug-in electric vehicle. The amount depends upon the model you pick, but for anyone in the market for a new car, it should be a serious consideration.
If you are considering a renewable energy project, then you can claim up to 30% of this using the Residential Renewable Energy Tax Credit. This can be for the installation of solar paneling, heaters, geothermal heat pumps, and wind turbines.
3. Gig Economy Savings
There are a number of deductions for anyone who is self-employed or working in the gig economy. The most useful of these is the home office deduction. This allows taxpayers who work from home to deduct certain expenses on their tax returns.
If you are moving into the gig economy do not forget to put earnings on your tax return. The IRS has suggested that people doing this, particularly those running gig jobs alongside full-time traditional occupations, switch to quarterly tax returns.
4. Interest
Interest is taxable, and if you earn over $10 in interest then you are liable to pay it. Anyone who has received more than this will gain a 1099 form from the IRS, asking them to declare it. The amount will vary depending upon the tax refund the payer received in the previous year, and you should work with a professional over the year to minimize the taxable interest on your return.
5. Check Your Withholdings
For anyone who works at a company full time, you will have filled in an IRS W-4 tax form when you started. This will have had information about your household and status. It is used to calculate the withholdings that you should pay on tax, known as exemptions.
Generally speaking, the more exemptions you have, the less tax you shall pay in your regular paycheck. If you want to increase the amount you get in your tax refund, you just need to reduce the number of exemptions on the form. This will then result in a bigger return at the end of the year.
The IRS has a withholding calculator for you to determine how and what you are entitled to. You can then visit your companies HR department to request changes to your W-4 form or use a tin verification to find your number and check it against your records. Some companies may only allow you to do this at specific times, though others may be freer about it.
6. Keep A Donation List
Donations to charities can be deducted from your taxable income. These donations do not have to be donations to charitable organizations made in cash. They can be physical donations such as goods or property.
To do this, all of your donations need to be itemized. Generally, this is better for people who make a wide range of donations in the period of a tax year.
You will also need a receipt for your donations. Most non-profit organizations will have systems already in place for this. There is also a maximum amount you can deduct for charitable purposes, so make sure you check this before donating substantial amounts in the hope of claiming it back.
7. Earned Income Tax Credit
If you have a low to moderate-income, then earned income tax credit can help with your tax return by reducing the amount you owe, or providing a refund even if you are not required to file a return. To qualify, you must meet certain requirements provided by the IRS. You can check their online system to find this out.
8. Family Counts
Child tax is not an exception to your tax bill, but a credit. This means that you get deductions made dollar for dollar from the tax bill, not just your taxable income. This is also refundable, so if the credits exceed your final tax bill then you get to keep the remaining money.
The child tax credit applies to children in your household up to the age of 16 years. For children up to the age of 23 in the household, there is a $500 dollar tax credit. You can also claim qualifying relatives.
How to Maximize a Tax Return With Help
In summary, once you know how to maximize a tax return, you should begin planning from the start of the year. Know what you can claim back and are entitled to. After this, consult a professional who will know the intricacies of the tax system and filing.
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Samantha Gaines wrote this article on behalf of FreeUp. FreeUp is the fastest-growing freelance marketplace in the US. FreeUp only accepts the top 1% of freelance applicants. Click here to get access to the top freelancers in the world.
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