Uncle Sam issued tens of millions of tax refunds every year, and every taxpayer gets an average of $2,500 tax payment.
If you know how to play it well, there could be bigger tax refunds this year. Here are tips for filing your tax and getting significant savings every year.
Improve Retirement Savings
If you contribute so much to your retirement account, like an IRA, for instance, you can get significant tax savings. This is because such a contribution reduces your taxable income and also allows you to save for retirement.
There is the opportunity to make tax-deductible contributions for self-employed people using a Simplified Employee Pension Account (SEP-IRA). Such an account has a limit of 25% of net earnings, alongside a maximum yearly contribution of $58,000.
Contribute to a Health Savings Account
Contributing to a Health Savings Account or HSA is another effective way to reduce and save on taxes. For this, one needs a high deductible health plan, and the contribution deadline is April.
With a Health Savings Account, you can bring down your income that can be taxed while saving for future medical bills.
Singles can contribute up to $3,500
Couples and families can save up to $7,000
For people 55 years and above, there is an extra $1000 contribution
With an HSA, you can increase your retirement egg.
Get Tax Credits
One of the unique advantages of a tax credit is its ability to bring down your tax bill on a dollar to dollar basis.
For instance, families and households can deduct as much as $2,000 from their federal tax bill for every kid that qualifies under 17. For those that are eligible, this $2000 tax credit means your tax credit will reduce by $2000.
There are also the Child and Dependent Care Tax credits for parents that utilize a childcare or daycare service for their kids. The credit is worth up to $3000 for every single kid, and you can claim it by contacting your childcare provider for the tally of the paid amount.
Strive for Tax Deductions
The limit for taxpayers to reach before they can itemize has been increased as they have to surpass the standard deduction value of $12,200 for singles and $24,400 for couples filing jointly.
There is a deduction for medical expenses they can take as a tax break for people who had major surgery or had a terrible illness.
All medical expenses above 7.5% of the AGI of the previous year can be deducted. For instance, someone that made $60,000 can only deduct medical expenses assuming it was more significant than $4500.
People that donated to a good cause might also qualify to claim a charitable deduction. However, such donations should have been made by 31st Dec of the previous year with the correct acknowledgement letters from such charity as proof.
For cases like this, it is essential to itemize on the tax return for the deductions, and you can only know if you qualify until you tally the expenses.
Consider the Withholding
Alongside the Treasury Department, Uncle Sam has added to the withholding tables to show new laws for standard deductions alongside personal exemptions that were cancelled with limits on some itemized deductions.
With this, a couple of taxpayers ended with refunds that were way lower than what they expected. Do not forget that withholding excess is a ticket to a large refund in the coming year, translating to an interest-free loan. On the other hand, holding too little translates to more paycheck with the possibility of owing Uncle Sam.
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