Your tax return has been filed, you received your tax refund, and that’s a relief. No need to even think about taxes again until next year, right? Wrong.
If you want to maximize your tax refund next year, you need to learn these 7 tax tips this year:
1. Deduct your education. A variety of education-related costs may be deductible. If you own a business or are employed, deduct the costs for education expenses that maintain or improve skills required for your employment. If your income is less than $80,000, you may be able to take a tuition & fees deduction for up to $4,000 of tuition, fees and books.
If you or a family member is pursuing a degree, you may be able to take an American Opportunity Tax Credit up to a maximum annual credit per student of $2,500, if your income is under $90,000 ($180,000 married filing jointly).
Or the lifetime learning credit provides a tax credit of 20% of tuition expenses, with a maximum of $2,000 in tax credits on the first $10,000 of college tuition expenses, as long as your income is under $62,000 ($124,000 married filing jointly). Answer a few easy questions, and TurboTax will compute the tax deduction or credit that maximizes your tax refund.
2. Deduct your job-hunting expenses. You can deduct the cost of travel, meals, telephone calls, resume preparation, career counseling, and employment agencies, to the extent that they exceed two percent of your income, if you’re job hunting, regardless of whether you actually change jobs. However, you can’t deduct the cost of finding your first job, or changing careers. And if you are working two jobs, the cost of commuting between them may be claimed as a miscellaneous deduction.
3. Invest in your future. Start investing in 401(k)s, IRAs, employee stock purchase plans, and other tax-advantaged accounts as soon as possible and contribute as much as you can afford. Small contributions made at an early age can be more valuable than large contributions made a few years before retirement.
You’ll save taxes now, and boost your wealth all at the same time. Although you have until April 15 of the following year to contribute to your IRA, your money will grow more if you contribute in this year. Over a lifetime, this additional compounding will greatly increase your retirement nest egg.
4. If you own a business, take available deductions. Keep track of car mileage, business dinners, computer use, daily appointments, and anything else that could help you to substantiate your deductions. Put your children to work by paying them reasonable wages to help you with age-appropriate jobs in your business. Children who work for their parents also may not have to pay as many different taxes as other employees, depending on their age.
5. Own your own home. Mortgage interest and property tax deductions will boost your tax refund. Review your settlement statement carefully for deductible items when you buy a house. You’ll find points, prepaid interest, property taxes, and other deductible items on your closing statement. And don’t forget that points paid when you acquire your home are deductible in that year. Points paid to refinance a loan must be written off over the length of the loan. But if you refinance again, don’t forget to write off the remaining unamortized points from the previous loan.
6. Clean out your closets and donate to charity. In addition to creating new space in your life, you can take a quick tax deduction for clothes, sporting goods, linens, and other household goods that you no longer use. Books and magazines can be given to the library. Make a list of the items at the time you donate them so you can deduct your charitable contributions at tax time. TurboTax ItsDeductible will figure out the appropriate fair market value for your donated items.
7. Get next year’s refund now. Tax refunds are not gifts from Uncle Sam – they are interest-free loans to your spendthrift Uncle. Structure your withholding so that you break even with the IRS at the end of the year. If you need help saving on a regular basis, start an automatic savings plan with a bank, credit union, or mutual fund.