So you’ve closed the books on the past tax year, or are in the midst of doing so (depending on your procrastination level), and your sights are firmly set on doing things better this year.
As with New Year’s resolutions, it’s all about timing. You make the most headway on those resolutions in the first days and weeks of a new year. Admit it: How many of you have let those gym memberships lapse?
Tax time, as well, provides the necessary momentum – and in some cases, frustration – to propel you toward a better experience next year.
If your goals include a bigger tax refund – or any tax refund at all – there are a few key tax tips to keep in mind as you proceed.
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Big Payoff vs. Break-Even
Amid the hoopla over those massive chunks of cash that magically appear this time of year, people often forget that individuals with little or no refunds earned that status through precise preparation of their tax obligation throughout the year. The information you provide on your W-4 through your employer determines how much money to withhold from your paychecks and to direct toward personal income tax. Calculations are based on the number of exemptions claimed. The more exemptions claimed, the less money held back for taxes.
If your goal is to maximize your tax refund, simply reduce the number of exemptions on your W-4 form, and more money will be withheld throughout the year for that April windfall.
Charity as a Win-Win
Beyond the good will earned through charitable donations, those acts of kindness can offer substantial tax savings and a noticeable difference in your refund, if done properly.
To be eligible as tax deductions, donations must be made to a nonprofit that can prove 501(c)(3) status. Any outfit that’s legitimate will note such status clearly on its website or printed literature.
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Also, keep in mind that receipts are required for any and all donations. If donating a significant number of items, the extra step of taking photographs of each item is another level of validation that could pay off come tax time.
Not all donations are tax deductible. Donations of the following items do fall into the tax-deductible category: real estate, furniture, clothing, automobiles, electronic equipment, office supplies and cash.
IRA: Short-Term Help and Long-Term Gain
One of the chief suggestions tax professionals offer individuals who are seeking ways to bump up those tax refunds is to increase contributions to retirement funds, such as an Individual Retirement Account (IRA).
In addition to building savings for retirement, these funds can help lower taxable income when contributions are increased.
The more of your income you direct to an IRA, the less of that income exposed to taxes. Hence, with a less taxable income, the less taxes owed and bigger the refund payout.
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The Payoff of Expenses
Those out-of-pocket expenses that are not reimbursed by your employer can often be deducted on income taxes to help increase that refund.
Those professional publications you pay for to keep informed on the latest trends in your field? The subscription costs can be deducted. The same for fees paid to professional organizations and unions that benefit you professionally.
If your company doesn’t reimburse you for work-related use of your mobile phone, then that portion of the phone’s use can be deducted.
These tips are by no means the end-all, be-all, but they’re certainly a great starting point as you run with the momentum to adjust that tax burden generated this ‘taxable’ time of year.
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