From the Patrick Parker Realty Tax Season Blog Series
Ways To Increase Your Tax Refund You Never Thought About
Laying the groundwork for a tax refund requires some simple tax planning, a little research and some forethought. Reviewing your tax status, consulting your spouse when filling out your W-4s and taking advantage of several tax credits can help you increase your tax refund.
Review your W-4: Bigger refund or bigger paycheck?
When you start a job, your employer asks you to complete form W-4. This tells your employer how much federal income tax to withhold from your paycheck. The more allowances you claim on the form, the less income tax will be held back. This will give you bigger paychecks, but a smaller tax refund (or potentially no tax refund or a tax bill at the end of the year). Factors to consider when choosing the number of allowances you claim include:
• Claiming allowances for yourself, your spouse and your qualifying children and dependents
• Taking an allowance for filing head of household
• Claiming more than $1,500 for child and dependent care expenses
• Working more than one job
• Having a spouse who works
Claiming fewer allowances on your W-4 will mean smaller paychecks, since more tax will be withheld. This increases your chances of over-withholding, which leads to a bigger tax refund. That’s why it’s called a “refund:” you are just getting money back that you overpaid to the IRS during the year.
“Be careful, though,” cautions Caroline Thompson, an accountant and president of Thompson Accounting and Tax, Inc. in Buffalo, N.Y. “By claiming fewer allowances, you give the federal government your money for the year, tax-free.” If you’re OK with that, utilizing your W-4 can help bring a tax refund at the end of the tax year.”
You can use a W-4 Withholding Calculator to help you estimate what allowances to claim.
Revisit your filing status
Choosing the filing status that best suits your needs can influence the possibility of a refund. Your filing status determines:
• Your standard deduction
• Your filing requirements
• The credits you are eligible to receive
• The amount of tax you pay or the refund you receive
There are five statuses to choose from, but the three most common are: married filing jointly, married filing separately, single, and head of household.
Claim the earned income tax credit
Working families, individuals, people who are self-employed and others who have a moderate to low income may qualify for the earned income tax credit. The EITC decreases the amount of taxes owed and may qualify you for a tax refund. To qualify, you must:
• Have a valid Social Security number
• Be a U.S. citizen, a year-long resident alien or a non-resident alien married to an American citizen or resident alien filing jointly
• Have income from self-employment, from an employer or from working on a farm
• Not be a claimed dependent or child of another person
• Have a qualifying child and be between the ages of 25 and 65, living in the U.S. for at least half the year
To receive the EITC you must file a tax return, even if you owe no taxes.
Include the dependent care credit
The child and dependent care credit is based on a percentage of the amount you paid for the care of a qualifying child or dependent. The total expenses you can claim are capped at $3,000 for one eligible individual and $6,000 for two or more. If your employer offers dependent care benefits, you are required to deduct this amount.
A qualifying individual is:
• Your child who is under 13 years of age
• A dependent who is physically or mentally incapable of self-care and who lives with you for more than half the year, or
• Your spouse who is incapable of self-care and lives with you for more than half the year
To claim the credit, other criteria must be met.
• If you’re married, you are required to file a joint return.
• You can’t use a caregiver who is a spouse or parent of the child, your child under 19 years of age or another of your dependents.
• Each qualifying dependent and child must have a Social Security number added to your return.
• You must provide the name, address and Social Security number of your caregiver.
Keep in mind that this is general information designed to help you put these valuable deductions on your radar. Patrick Parker Realty Agents and Realtors are not certified accountants. Please be sure to check with your tax adviser to see if you qualify for a particular credit or deduction.
Check back in with the Patrick Parker Realty Blog each Tuesday, Thursday and Saturday for more Tax Season Blog Series’ Posts and sign up for the Patrick Parker Realty eNewsletter to have updates delivered to your inbox monthly.
The Blog Series will cover many topics such as How do I qualify for a home seller break?, How do I qualify for a home buyer break?, Do I have to report the home sale on my return?, What is the gain on the sale of my home?, What Are Home Renovation Tax Credits?, Deducting Mortgage Interest, Taking the First-Time Homebuyer Credit, How to Avoid Taxes on Canceled Mortgage Debt, Tax Incentives as they relate to Life’s biggest transitions, such as Marriage, the Birth of a Baby, Divorce, or the death of a Spouse and much more. New posts in this Blog Series will be published twice weekly.
For more information about paying taxes on the sale or purchase of your home or any other questions you have about this article please speak with your tax professional or visit www.irs.gov.