Since the IRS gives you the option to get tax refunds, making wise moves always helps. In fact, there are some things that you can do to increase your refund value. This is a great thing to do because you actually get to lower your tax burden. However, you need to know the A to Z of taxes, sources of income and valid tax deductions if you want to smarten up your taxes right from the start. Further, there are some tips that you can follow to maximize the refund value when you file the taxes. Here is a list of the tips that you need to know about to sort out your finances.
Evaluate your filing status
While you prepare your tax returns, you have an array of options for filing status. These include Single, Married Filing Separately, Married Filing Jointly, Qualified Widow(er) with Dependent Child and Head of Household. The choice of the right filing status can be considerably useful for reducing your tax obligations and getting you a bigger refund. For example, some married couples can get an advantage by filing separately, such as in a situation of one spouse having many out-of-pocket medical expenses. The best approach would be to seek expert advice in this context.
Contribute to a retirement account
Another smart move to reduce your tax burden is by contributing to an individual retirement account (IRA) or a traditional retirement plan such as a 401(k). The contributions reduce your taxable income, which means that you pay lesser taxes. Additionally, you save up for the future in addition to getting a tax refundwhich is definitely a smart idea to save in both ways. Any funds you invest therein are tax-deferred till the time you withdraw them in retirement. The best part is that you can make the IRA contributions for the previous year until April 15.
Know your deductions and credits
The IRS has a number of tax deductions and credits that you can claim to cut down your liabilities. While you can subtract the deductions from your income before you calculate taxes, credits are deducted from the amount of tax owed for the year. However, experts recommend that that you stick to only the legitimate ones otherwise you may get an IRS audit. They can also help you handle an audit notice if you do get one.
Pay off your debts
Debts are never good for anyone and they can make things even worse from the tax perspective. If you ownmoney to the IRS or have other outstanding loans, paying them off can improve your tax return. A seasoned tax attorney can help you get a feasible settlement with the IRS to repay the outstanding debt. Look for tax attorneys with over 10 years of proven performance because they definitely have ways of working things out. In fact, they can work out an installment plan or even get you an offer in compromise with the IRS. In the end, you end up with fewer hassles even if you repay your debts to the tax authorities.
Get health insurance
Another good way to get smart with your taxes is by getting health insurance. This will give you a dual advantage, firstly with a health cover and secondly, with significant tax savings. You can secure a pretty generous tax refund if you had health insurance all year or at least get one before the last day for qualified registration. You may also qualify for a refund if you have spent a considerable amount on healthcare costs. It is a good idea to schedule a medical appointment before the end of the year as you may be able to claim a higher refund by doing so.
Donate to charity
Getting a deduction in lieu of charity is another good way to cut down your tax burden. You can even get a deduction for non-cash donations given to a qualified charitable organization if you itemize your tax deductions. However, you should have proper receipts and records of the donation to be able to claim them legitimately. The IRS will watch out for any donation that seems too large and disproportionate with respect to your income. Obviously, you will be able to donate only an amount you will be comfortable with according to what you earn.
Considering these key tips, it becomes easier to reduce your tax amount and increase the refunds at the end of the year. At the same time, most of them also give you the opportunity to strengthen your finances. So it would be best to consult an expert and understand how you can legitimately manage your taxes.
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