Many people are unaware of how they can optimize their tax payments, and maximize their tax refunds. As the deadline approaches, taxpayers get busy organizing their documents, mostly considering the activity as an unavoidable chore. Since little forethought goes into it, taxpayers lose out on tax refunds they could have had with a little planning.
The good news is that saving on taxes is not a set of complex procedures or part of some nifty tricks that only the experts know about. Anyone can do it if they are willing to start planning early. To help you with that here are three ways in which you can increase the refunds you receive.
Contribute towards a retirement fund
This is one of the most common, and easiest ways to reduce your tax burden or increase your refunds. Taxpayers can contribute towards 401(k) or IRA to decrease their taxable income. The best part about contributing towards retirement is that taxpayers while lowering their taxes, will also be making an investment towards their golden years.
There is a limit to the contributions a taxpayer can make to their 401(k). For those aged 50 or above, it is $25,000, while for others, the limit is $19,000. For IRA, it’s $7000 for those 50 or older and $6000 for the rest. Taxpayers can also make use of Savers Credit up to $1000 and $2000 if filing jointly as a married couple. This is a practical way for those middle to low-income taxpayers to contribute towards their retirement and save on taxes.
Giving back to society has several psychological and physical benefits. But helping out the less fortunate can also help you lower your taxes or increase your refunds. Both monetary contributions and non-monetary donations can get you tax deductions provided you contribute to qualifying charitable organizations. There is a scope for deductions for those volunteering too. They will be able to claim deductions, at the rate of 14 cents for every mile they travel to the charity. Here’s one more reason to donate your time and money to reach out and help the underprivileged.
Review tax withholdings
Consider this as a comprehensive review of your finances with a focus on your taxes. Even employees who have been receiving paychecks from the same organization for years may not know how much federal and taxes are withheld from their paychecks. Although this happens every month, most people don’t look into the details.
IRS has a tax withholding calculator that taxpayers can use to determine that the amount being withheld is the right one and that taxpayers don’t end up owing the government. If taxpayers discover that they owe back taxes, they will be able to either make full payment after filing taxes or make an estimation of their payments to the IRS, before filing their returns.