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It’s almost that time again. Tax season is right around the corner. For some, it’s like having a second Christmas. For others, it can be reminiscent of the Spanish Inquisition. What you receive as an income tax return is determined by quite a few details ranging from how much money you were able to make over the year to how many and what types of deductibles you can claim.
How you chose to file, and when, can also play a part. With so many irons in the fire, it’s hard to know where your return could be improved and how to improve it. Below are three suggestions that may help you bring home a larger return.
Reconsider Your Filing Status
Every year, as millions of people reach for the ultimate income tax refund, one of the first things they must decide is which status to file under. Most married couples automatically choose married filing jointly as their status. That may not always be the best choice if you are attempting to bring home a larger return.
There is at least one instance that you may want to choose the alternative. For example, if your spouse has a lot of medical expenses, it may help to file separately. You are only allowed to claim what exceeds 10% of your income for the expenditure. Including your combined income will increase how much is included in the 10% and may lower the amount you are able to claim.
Claim Fewer Allowances
One of the first things you will learn about in CPA training is how to help your clients choose how many allowances they will include on their income tax return. This process begins when they fill out their tax forms for payroll at their place of employment.
The amount of money kept out of your check at the end of the pay period is directly related to the number of allowances you decide to claim. The more you claim, the less the company will withhold from your check. This is a wonderful thing if you have bills that are behind, children, or aging parents to take care of.
The extra money can be very helpful. However, if you choose to claim less allowances or none, your workplace will withhold the maximum amount from your check for taxes. This sounds bad right out of the gate, but think of it as a savings account. Not only will the extra money being withheld help pay your taxes, once your tax obligation is resolved, the extra just pads your return.
Earned Income Tax Credit
There is one advantage that one out of every five filers either doesn’t know about or just refuses to take. It is that of the Earned Income Tax Credit (EITC.) The EITC is a set amount of money meant to replace a certain part of low to moderate incomes of adults with children. As the income increases, the level of help decreases.
For having one child, that tax credit can be as high as $3,400. If you have two or more children, the dollar value increases to $6,318, as of 2017. If you have already paid in your taxes, this entire credit could be refunded to you.
As tax time draws near and you dream of that big return, take the time to refer to these tips as often as you need and prepare a strategy that will leave your wallet bursting at the seams.