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Nobody looks forward to tax season, but doing your taxes is more than a chore. Done right, it’s a chance to add to your bank balance by maximizing your refund.
In this blog, we explore a few key strategies that can help you get more money back when it comes to tax time. This guide will help you navigate deductions and tax credits and offers other smart tax tips to ensure you get the most back on your hard-earned cash.
Follow these seven key tax strategies to learn more about how to efficiently and legally claim more back on your taxes this year.
Understanding the basics of your tax situation is the first step toward securing a bigger refund.
Start by assessing your total income, including your salary and any side hustles, freelance gigs, or rentals. Knowing what’s coming in and where it's coming from can help you identify which tax bracket you fall into and what deductions or credits you might be eligible for.
With this knowledge, you're ready to tackle your taxes and ensure you're not leaving money on the table.
Deductions are a big part of getting more money back from the government. They let you lower your taxable income and may potentially allow you to drop into a lower tax bracket.
First, understand the difference between standard and itemized deductions to see which path benefits you most. Your standard deduction is a fixed amount set by the Internal Revenue Service (IRS) that reduces your taxable income, no questions asked. It's simple and is designed to avoid the itemization of taxable expenses, making it a hassle-free choice for many taxpayers.
However, if you have significant deductible expenses, itemizing could shrink your tax bill even more. Commonly itemized expenses include:
Mortgage interest
State taxes
Medical and dental expenses
Home office expenses
Certain educational expenses
Charitable donations
Keep thorough records of your expenses throughout the year, so you can maximize your deductions at tax time. Not sure which deductions you might qualify for? Check with your tax professional.
Tax credits are perhaps even more valuable than deductions because they reduce your tax bill regardless of your tax bracket or the amount you can deduct. Some of the most valuable credits you might qualify for include:
The Earned Income Tax Credit (EITC), designed for lower to middle-income taxpayers.
The Child and Dependent Care Credit if you're paying for childcare.
The American Opportunity and Lifetime Learning credits offset higher education costs.
Each credit has its own eligibility requirements, so it’s important to understand which ones you can apply for. Again, if you are not sure, check with your accountant or a tax professional. Remember, when you do qualify for a credit it’s money straight back into your pocket.
Are you making the most of the tax-advantaged benefits of your IRA or work 401(k)? Investing in these retirement accounts not only helps secure your long-term financial future, it also offers ways to lower your annual tax bill and boost your refund.
Contributions to IRAs and 401(k)s are made with pre-tax dollars, meaning that every contribution you make helps to reduce your taxable income for the year. That’s a double financial benefit - immediate tax relief and long-term retirement savings, especially for those who start to make contributions young.
In addition, some contributors may also qualify for the Saver’s Credit, a tax credit for low to moderate incomes, which provides an extra incentive to save.
Being smart about investment choices can also help to reduce your taxable income. For example, holding an investment for over a year may allow you to qualify for lower “long-term” capital gains taxes, rather than the higher rates applied to short-term gains.
You can also be smart about timing the selling of loss-making investments. These losses can then be used to offset investment gains in the same year, reducing your overall taxable income. These investment approaches require careful timing and a good understanding of the prevailing market conditions, so it’s worth consulting a tax advisor to help you with these strategies.
As we mentioned, contributions to registered charitable organizations are tax deductible. This includes cash contributions as well as donated goods, such as clothing and household items.
To maximize your benefits, keep detailed records of all donations, including receipts and acknowledgment letters from charities. For larger non-cash donations, consider getting a professional appraisal to accurately value the items for tax purposes.
By tracking regular charitable giving, you can reduce your taxable income while supporting worthy causes of your choice. What’s not to like about that?
Choosing the right tax filing status and working with your employer to adjust your tax withholdings can also affect how much tax you end up paying over the year, and thus the size of your refund.
Your filing status, whether single, married filing jointly, married filing separately, or Head of Household, determines both the tax bracket you fall into and the standard deduction amount that you qualify for. Check with your tax advisor to make sure you select the status that best reflects your personal situation to maximize your tax benefits.
At the same time, tweaking your withholdings can prevent you from overpaying taxes throughout the year. For example, if you consistently receive very large refunds relative to your income, consider reducing the withholdings from your paycheck to boost your take-home pay. On the other hand, if you end up with only a small refund or even owing taxes, you are probably withholding too little.
You can use the IRS's withholding calculator to find the right balance for your situation, ensuring you have enough tax withheld, while also maximizing your take-home pay.
As we have seen, the key to maximizing your refund is to stay informed, organized, and proactive, not just at tax time but throughout the year. Make sure to claim everything you're entitled to, don’t leave money on the table. And, if you're unsure about any details, consult a tax professional for personalized advice.
Foothill Credit Union is dedicated to helping our members make the most of their money, and that includes getting everything you are entitled to back in your tax refund. We offer a range of products including checking and savings accounts to help you make the most of the money in your pocket, and tools to keep your finances organized, so you’re ahead of the game when it comes to tax time.
Contact us today to find out how we can help you make the most of your finances, or click below to learn more about how to join Foothill CU and open your first account.
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