Tips To Maximize Your Tax Return
It is an obligation of every citizen to pay taxes to the government to generate revenues. While most Americas do not agree on how their taxes are spent, most of us are busy looking for ways to boost our tax return or to pay not more than we are required to. You are required to know that limiting your tax liability is one of the key factors of maintaining your wealth because you won’t have to give out excess money to the government as taxes. Here are some tips to maximize your tax return while still limiting your tax liability.
Maximize Your Deductions
To maximize your tax return, you should consider some deductions and credits which are available to taxpayers depending on their income situations or family. Some of these deductions include charitable giving. You can maximize your tax returns by making an end of year charitable gift to a qualified non- profit association of your choice. With charitable giving or donations, you can give up to 50% of your gross income without giving out your money.
You can change your retirement scheme plan to maximize your returns while still preparing yourself after retirement. You can take advantage of Roth IRA contribution by maxing your 401(k) or 403(b) contributions to lower your tax liability as you approach retirement.
You can save a lot of money by just setting up your children, relative or even a friend to a college savings plan. With about $14,000 college contribution limit a year, you can save tens of thousands from your taxable income amount which could not have been possible without education contributions.
If you are married, filling status could be a factor that determines whether you will maximize your returns. A joint return for married couples is not always the best choice to boosting your tax refund in future because IRS uses adjusted gross income (AGI) to determine whether some of your deductions can be used in calculating taxes. When you fill separately as a spouse, your AGI lowers making your tax returns to boost.
However, if one of the spouse has a lot of medical expenses, computing differently allows the spouse to reach the percentage AGI needed as per his/her own income. Also, filing separately saves tax costs to the an unemployed spouse especially if one of the spouse spends a lot of time traveling incurring travel expenses such as baggage fees which could reduce their tax returns. However, filing separate tax returns have several drawbacks which might include losing credits that could be available to spouses who have a joint return.
Maximize Your IRA Contributions
Traditional IRA contributions reduces your taxable income because it gives you the flexibility of claiming the credit upon your tax return. If you are at least 50 years of age, you can take the advantage of maximum contribution which will add your IRA returns. Also, if you happened to contribute to Roth IRA, you may be able to claim your retirement savings and contribution credit which lowers your taxable income and results in a large refund check.
Know Your Tax Bracket
If you don’t know your tax bracket, you are supposed to get the information from annual IRS reports which contain tax information both for single and joint households. By knowing how much you are supposed to make in a year, you can be able to determine the number and the type of tax limiting moves to make in reducing your expenses.
Understanding Tax Reducing Terms
There are many terms which are used to explain how you can reduce your tax deductions yearly. You are required to understand them carefully to effectively maximize your tax returns without losing some important benefits. For instance, tax deductions such as donations and home interest loans reduces your taxable income.
Furthermore, tax credit such as American Opportunity Tax Credit for college fees lowers your taxes with a very large proportion. By understanding these terms and their meanings could be a key in choosing the most appropriate method of tax reduction.
With creative planning and little education, you can maximize your returns while still avoiding to pay taxes with money that could otherwise have been used to better your future and that of your family.