Your tax refunds are nothing less than surprising Christmas gifts that arrive in the springtime. With a sudden boost in your bank account, you might plan to go out for a family vacation or on a shopping spree. Others may plan to put the tax returns in an investment account or pay off a debt or payday loan in advance.
Tax refunds empower working professionals to improve their well-being and living standards. You worked very hard to earn your money, and hence when the tax returns arrive it is always a great feeling and celebration time for the taxpayers.
However, this celebration time isn’t too exciting for those receiving minimal refunds. There could be various factors which cut-short your tax refunds. Even a small wrong financial decision can eat up your tax returns. The good news is that you can control how big your tax returns could be for this financial year.
Here are 5 simple hacks to maximize your tax refunds –
First and foremost, the most important step you need to take is to start investing in a tax saving plan. Early tax planning and right investments are one of the most prominent ways to take advantage of deductions and maximize your tax refunds. And hence, you must make tax-reducing investments right from the beginning of the financial year. Consult a tax-planning professional or an accountant for assistance in tax-planning.
Increase IRA Contributions
This is one of the most highly recommended ways to maximize your tax refunds. Start contributing in an Individual Retirement Account (IRA). And if you are already contributing in one such account, it’s time to increase the contributions. Remember, the more you contribute, the less of your income comes under the tax bracket. However, you should also remember that there is a limit for such contributions.
Don’t Forget Deductions
Don’t forget to deduct donations made to charitable organizations, as it will lower your taxable income. Donations made to non-profit hospitals, charitable schools, colleges, and religious organizations are exempted from taxes. Also, the expenses and costs for dependent care (children and aging parents) are also deductible. Healthcare expenses of your family can also be deducted. Consult a tax professional to know about this clause in details.
It is a well-known fact that credits are much more effective than deductions when it comes to reduce taxable income. Some of the credits made to your account are exempted from the taxable amount. These include:
- The Earned Income Tax Credit
- The Child and Dependent Care Credit
- The Child Tax Credit
- Additional Child Tax Credit
- Educational Tax Credits
If you are eligible for any of these credits, your taxable income will reduce substantially or it will eliminate the amount of tax you owe, increasing your tax refunds.
Last but not the least, don’t ever delay paying off your taxes. Taxpayers who stick to the calendar and deadlines have higher chances of maximizing tax refunds. Be smart with scheduling health-related examinations and investments to the tax-saving accounts to boost the tax returns. If you have taken a bank loan or an online payday loan, be very careful with the repayment dates, as you would not want to use your tax refunds for late payment fines and additional interests.