Paying taxes can be too demanding. But some people may find the rainbow after the rain through tax refunds. There are instances where taxpayers pay more funds than what they owe to the state, and in cases such as this, a tax refund is warranted. This stroke of luck happens either by paying more income tax or applying for tax credits.
If you want to maximize the refund, you can boost the numbers you get on your return. Below, we’ll walk you through some practical tips on dealing with IRS tax refunds and the process it takes to claim them. Let’s dive into it!
- Consider your filing status
The first thing you have to consider for your tax return is your filing status. Single individuals who have overpaid their taxes can file for a tax return. The other status options include married filing jointly, married filing separately, head of household.
For married couples, the extra tax will be reimbursed through a joint return. If you care to maximize the resources you have as a couple, submitting your taxes separately can save you some cash on income taxes.
If you have children and depending on the child’s age, you can also file for the Child Tax Credit separately. However, filing separately has its drawbacks, so it is up to you to weigh the pros and cons to make the most out of the refund potential.
Unmarried taxpayers can also have tax deductions by filing as the head of household, especially if you care for your elderly parents and pay for more than half of your parent’s financial support.
- Collect tax credits
Tax credits can boost your refunds with their tax reduction on a dollar-for-dollar basis. An example is the Child Tax Credit, which can reduce $3,000 for children 6 to 17 and $3,600 for those under 6. Families with eligible children can enjoy this refundable tax credit. Another is the Earned Income Tax Credit (EITC), which most qualified taxpayers overlook. It is one of the most beneficial tax credits for families with low to moderate incomes.
Applying for tax credits can also save you from incurring debts from not paying taxes. In such a case, there is another option for you to repay the debt through Fresh Start Initiative. However, one of the general qualifications for the Fresh Start Program aside from financial incapacity is the filing of all current and previous tax returns, regardless of whether or not you can pay them.
- Check the tax deductions
There are many tax deductions you should be aware of as they can provide a considerable difference in your tax refund. Some deductions you may receive are the student loan interest for students who met all the requirements, even if someone is paying for the loan and not the student specifically. Others include the state sales tax, medical expenses, and charitable contributions.
Remember to keep track of your deductions for documentation. Moreover, always ask for receipts, as some may not provide receipts for some expenditures like charitable contributions.
- Boost through perfect timing
Simply knowing the tax credits and deductions you can have is not enough if you don’t look out for the perfect timing to maximize your tax return.
To maximize the refund potential, you can make all possible contributions before the year’s end to reduce taxable income. You can even pay for your mortgage a day before the month you have to pay to receive an added interest for the deduction. It also applies to other cases, such as the medical expense deduction to boost your tax refund. Thinking and filing your tax returns strategically can help you claim a bigger tax refund amount.
- Save for retirement
You can start your contribution to your Individual Retirement Account (IRA) and get tax-advantaged growth to get tax benefits. Through the IRA, you get to decrease your taxable income and save up for your retirement in the future. Remember to start early, contribute as much as you can, invest in it and make it a habit by setting up automatic investment to ensure greater tax returns.
Claiming Your Tax Refund
You can check your tax refund by filing the annual tax return form. It will help you calculate the amount of taxes you need to pay, so you can request a refund if there is an overpayment. It can be issued through personal checks, direct deposits to the bank account, or U.S saving bonds.
Claiming tax refunds may be a long process as the IRS might take an average of 21 days to issue refunds. Some may take longer than usual, especially if there are errors, incomplete information, and includes claims filed for EITC, among others. The fastest way to receive the tax refund is by directly depositing it to a savings account, given that you have a U.S account. After request, you can check the status of your refund in the Where’s My Refund on the IRS website.
Tax refunds may seem like alternative savings, just like suddenly finding a dollar in your jeans’ pocket. And just like other money, there are also ways to boost your refund potential. However pleasant it may be, it would still be better to avoid paying more taxes than you owe by correctly filing your taxes and calculating your estimated taxes come tax season. You can also give the IRS website a visit if you need more information regarding the refund.
Randall Brody is the Founder of Tax Samaritan, a boutique firm specializing in the preparation of taxes and the resolution of tax problems for Americans living abroad, as well as the other unique tax issues that apply to taxpayers. Here, they help taxpayers save money on their tax return.