The upside to the upcoming tax season is the refund you will receive between now and the end of April. While it is good to get a refund, many tax filers leave money on the table by not capitalizing on all of the available deductions or credits.
The tax code can be complicated, making it difficult for many to get the largest refund possible.
Before you press the send button to file your return electronically, check out these commonly missed areas, that can increase your refund, leaving more money in your pocket.
- Double check the filing status. There are five filing statuses to choose from including single, head of household, widow, married filing separately, and married filing jointly. Your tax bracket, standard deductions and in some cases tax credits depend on the filing status, making it a way to boost your refund in some cases. When qualifying for more than one status, you may choose the one most financially beneficial to you.
The IRS bases your filing status on the last day of the year and applies to the entire year. For example, if your divorce finalizes on December 30, you can file as single for the entire year.Single filing status applies to those who have never married, divorced, or legally separated.
Head of household gives you additional tax benefits when you support dependents, even if you are legally single.
Married couples can choose to file either jointly or separately each year, and previoucs filing decisions will not impact this year’s options. Most couples file jointly to take advantage of an increase in deductions and credits which require jointly filing. However, filing jointly also gives both parties joint liability for any amount due and joint access to any refund, even if only one person provides all the income. There are times when filing separately will provide a larger tax benefit. For example, in cases, where one person has high medical bills in a single year, or one person traveled extensively, you might receive a higher tax benefit by filing separately because the deduction thresholds are lower with a single income. Check the refund both ways to determine the best filing status to use.
The qualifying widow status offers widows or widowers with dependent children additional benefits following the death of a spouse. During the year the spouse dies, you may file a joint tax return. Then for the following two years, you may choose the widow filing status and receive similar tax treatment as married couples jointly filing.
- Dependents are another place you may qualify for a higher refund if you have additional qualifying dependents. Each dependent adds $4,050 in exemptions, making it very valuable to include everyone who qualifies. You know to include a spouse and children living at home, but sometimes other relatives, parents and even non-relatives may be a qualified dependent in certain circumstances. In general, the rule is that you must provide more than 50% of the person’s support and the dependent must live with you more than six months of the year. However, there are important exceptions to this rule. In all cases, you must provide more than half their Exceptions to the residency requirements include students under the age of 24, children of divorced families with a tax filing agreement giving the non-custodial parent tax filing rights, and parents living in senior facilities. For example, if you provide more than 50% of the support for a parent in a nursing home, they may qualify as your dependent. Other people living in your home who make less than the personal exemption of $4,050 may also qualify as a dependent in some circumstances.
- Volunteer expenses. Most tax filers remember to deduct charitable contributions in the form of cash or goods. You may include the market value of donated household goods, clothes, and even larger items such as vehicles, stock, or other property. In addition to physical contributions, there are also deductions available for volunteer work, provided you keep adequate records. Mileage, parking, tolls, and goods purchased in the course of volunteer work may add to your charitable deductions. For example, if you lead a scout troop, you cannot deduct the value of your time, but money spent on supplies count as a deduction. Spending a day volunteering at a scout camp allows you to deduct the miles to and from the camp. Making cookies for a bake sale offers a deduction for the food purchased to make the goods.
- Job hunting and moving for employment are two separate deductions you might qualify for to boost your refund. Job hunting expenses can include resume preparation, the cost of the job search and interviews, including travel, and fees to placement agencies. You must look for work in the same occupation, and it can't be your first job out of school.You might qualify for the moving expense deduction if you accept a new job which is 50 miles further than your current job, from your old home. For example, if you drive 10 miles to your current job, the new job must be 60 miles from your current home to qcualify. Other requirements include working at the job for 39 weeks or more and moving close to the start date. Deductible expenses include the costs of packing (including boxes), moving truck, storage, travel expenses, and other related costs of the move.
- Valuable tax credits. In general, tax credits are more valuable than deductions because, for every dollar credit, your tax liability goes down incrementally. Deductions reduce taxable income, which is not a dollar for dollar reduction. In some cases, you may find both deductions and credits. Go for the credits and fall back on deductions if you do not qualify for the credit. Education credits are a good example. There are the American Opportunity Tax Credit and the Lifetime Learning Credit that directly reduces tax liability. You can use the first credit for expenses incurred during the first four years of college, and you may benefit even if you do not owe any taxes. The Lifetime Learning credit applies to those returning to school such as graduate school or classes taken without pursuing a degree. Other tax breaks include an interest deduction on student loans and a tuition tax deduction you can fall back on if you do not qualify for the credits.
The key to maximizing your refund is to maintain receipts, keep records of your activities throughout the year, and arm yourself with knowledge on tax changes and potential tax breaks.