Filing income taxes are a hazard of life for nearly any adult living in the civilized world. Taxes are generally seen as a way to keep governments running smoothly and to pay for public concerns, such as roads. Here are just a few tips to keep in mind so that you can see the best tax return especially as tax rules are changing for many.
If your life situation has changed within the past few years, you may need to take a peak at your W-4. Your W-4 shows you how many dependents you are claiming and how many withholding exemptions you have. If you want to see a larger paycheck but have more to pay in taxes in the next tax season, consider claiming more allowances. Some people prefer to do it this way so that they can invest the money that they are saving for the rest of the year. However, if you would rather celebrate in April with a large tax refund, consider claiming fewer allowances.
Determine Filing Status
If your life situation has changed, particularly if you got married this past year, your taxes may change exponentially as well. You and your spouse will have to consider whether to file separately or jointly. On the flip side, if you have gotten a divorce in the past year or if your spouse has passed away, be sure to change your filing status and adjust your withholdings to reflect this. Usually, married couples will see the best refunds when they file jointly because of the additional tax breaks offered to them. However, in some cases, such as when there are many medical expenses for one individual, it may be best for couples to file separately.
Use Itemized Deductions Wisely
Many people will see their taxes change drastically in the upcoming year due to the many changes to the tax code. For some, this will provide a better refund while others will see virtually no change at all. One of the biggest changes for middle-class families to consider is the change to itemized deductions. Not all deductions can be claimed anymore, such as unreimbursed employee expenses, tax preparation services, moving expenses and professional dues. However, these changes are mostly offset by the change in the standardized deduction available to most people.
Do Tax Planning throughout the Year
Instead of waiting until the last minute to try to pull receipts, paperworks, cashed checks and self-employment earnings together in March, you will thank yourself later when you keep accurate and complete records today. At the beginning of each tax year, start a spreadsheet on your computer or a pen-and-paper spreadsheet for earnings, itemized deductions and other miscellaneous expenses that you will be able to claim on your taxes. You should also save receipts in a box or folder in a safe place in case you are audited.
Use Professional Services
Unless you are a single person working one job, you may find tax preparation to be over your head with the changes coming in the new tax season. It can be equally confusing if you must file taxes in a different country as well. Consider using professional accountants or tax preparers for your tax returns. They will help you find all the deductions possible, fill out paperwork for you and ensure that you pay no more than you legally must in taxes.
Contribute to a Retirement Fund
One way to offset taxes for a season is to contribute to your retirement accounts. You have up until the April deadline each year to make a contribution that will count for the previous year. If you have reached retirement age and must make withdrawals from your retirement funds, be sure you utilize your accounts to offset your taxes. In general, you should withdraw first from your taxable account, such as your 401(k), before moving on to the Roth IRA and tax-deferred accounts. In addition, speak to your financial representative about converting a traditional IRA into a Roth IRA.
While income tax season is certainly not your favorite part of the year, it is a necessary part of living in a civilized society. However, there is no reason to pay more than you must. Consider putting these smart tips into action today, and talk with your financial advisor for advice relating to your situation.