For American taxpayers, a tax refund feels like a Christmas present or lottery prize. With a bank account boost, they can take a shopping spree, pay down debt or grow their savings. The Internal Revenue Service (IRS) even provides a refund status tool to help them anticipate the refund’s arrival.
Not everyone celebrates during tax season, but a little preparation now can guarantee a refund next year. Taxpayers who receive small or no refunds are precise in their tax preparation, which achieves a break-even outcome. Here are five ways to reduce tax liability and boost a tax refund.
Increase the Withholding Amount
Completing Form W-4 is one of the first things new employees do after they are hired. The information they provide on the form determines the amount of money the employer withholds from each paycheck for income tax. The amount is based on the number of exemptions the employee claims.
Taxpayers can increase the amount of their tax refunds by increasing the withholding amount on their W-4 tax form. They do this by reducing the number of exemptions they claim. While their paychecks will be smaller, some of the withheld money will return to them in a larger tax refund.
Rethink the Filing Status
A taxpayer’s filing status can affect the size of a tax refund. Most married taxpayers file a joint tax return, but this may not be the best way to boost a refund. Under the right circumstances, a married-filing-separately status can be more beneficial to couples. Calculating taxes for both filing statuses will show couples the way to a higher refund.
Online tax preparation services often perform this calculation automatically and recommend the best filing status. A tax preparer with a company like 1800Accountant.com reviews this information too, and he or she can point a client in the right direction.
Consider the Tax Deductions
Tax deductions can help a taxpayer’s refund cause. Tracking the mileage for doctor’s appointments, job hunts and volunteer work can seem like a waste of time, but the miles can add up to tax deductions. Americans who relocate for work can deduct travel, moving and storage expenses. Charitable contributions, including the market value of in-kind donations, can also increase a tax refund.
While Americans disagree on how the government spends their taxes, few taxpayers want to pay more than they owe. Most are looking for ways to get the most money back. These three strategies can help people reduce their obligations and boost their refunds.