Now that tax season is over, did you have to pay taxes instead of getting a refund? You are definitely not alone, and there will probably be a repeat performance next year.
There are several things you can do to increase your chances of getting a refund, and you don’t have to be a tax accountant to take advantage of these deductions. The key is to start planning now and not wait until the end of the year. Below is a list of what to do.
Contribute to a 401K or IRA
Most people think that the only reason to contribute to a retirement fund is to ensure financial independence as you age, but it can also have short-term tax benefits. Most of the time, the money you invest in your 401K and IRA are tax deductible and not included in your taxable income.
Donate to a charity
Charitable donations or expenses related to volunteering can be itemized and deducted from your income at the time of tax filing. Just remember to save all your receipts and keep track of all the miles you drive on behalf of a charity or the organization you are volunteering for. These miles will be deductible at 14 cents per mile for 2018.
Buy a primary residence
There is a clear tax benefit to owning a home. The interest you pay on your mortgage is tax deductible. For the first few years, your mortgage payments go toward interest, which will dramatically lower your adjusted gross income at the time of paying taxes. Consider paying your January 2019 mortgage payment in December for maximum tax benefit in April.
Invest in solar energy
If you are making a home improvement list, consider adding solar panels to that list. Solar will make homeowners earn up to 30% of their installation costs in tax credits. I would hurry because those credits will decrease after 2019.
Claim educational credits
Student loan interest and / or tuition can be used as a tax deduction. Current students can also access the American Opportunity Credit, which covers up to $ 2,500 a year for four years, and the Lifetime Learning Credit, which can cover up to $ 2,000 per tax return.
Start a business from home
Starting and maintaining a home-based business will provide you with a new source of income, but more importantly, it will allow you to deduct all income generated by the business. These specific deductions can include business expenses, parts of your mortgage, utilities, repairs, and even start-up costs for the business.
Medical or dental expenses
Many of your medical and dental expenses are tax deductible, as are transportation and parking costs.
Open a flexible spending plan
Many employers offer flexible spending plans that will allow their employees to contribute to their annual medical expenses. These medical contributions generally do not count toward taxable income.
Job search
If you find yourself looking for a new job next year, remember that you can write off some of the expenses associated with finding a new job. These amortizations include clothing, travel, food, etc. And these expenses are deductible even if no employment is found within the tax year.
Make estimated payments
As they say, the best defense is a good offense. If you are concerned that your deductions will not adequately cover you for the tax year, it will be advantageous to make quarterly payments that you and your tax accountant believe will cover your income that is not subject to withholding tax.
Start a family
Child tax credits are still included in the new tax reform bill. In fact, they have increased from $ 1,000 per child to $ 2,000.
Find all available tax credits
We have named many tax credits in this article, but there are many more that can be used. Some of these include child care costs for low-income households and adoption. Keep in mind that tax credits are worth more than simple deductions because they can lower your taxable income dollar for dollar.
The Jobs and Tax Cuts Act of 2017 that became law in December provided a major overhaul to the previous tax law. This law will affect your tax planning for 2018, so it will be important to have a professional do your taxes. No matter how much you think you know or how much research you do, a professional will be able to identify those tax deductions and credits that will be beneficial to you. A professional will also help you stay organized and minimize your tax liability.
Remember, be a wise taxpayer and learn how to earn money from your tax return.