Tax Time. Just those two little words create a myriad of emotions in American citizens. The preparation and filing of income taxes generates fear, bewilderment and anger. But taxes can also produce a feeling of joy and be a time of celebration for those receiving a significant refund.
Regardless of your sentiments on income tax, there is no way to get around it. The time has come to track down your receipts, bank statements, housing costs and charitable contributions and record them on the government’s confusing and lengthy tax forms by the April deadline.
According to the tax preparation powerhouse company H&R Block, 1 in 5 filers who prepare their own taxes disregard benefits and lose out an average of $460 in either credits or deductions.
Surprising Ways to Boost Your Refund
Before you file, consider these often overlooked deduction for your income tax returns:
You can actually deduct the cost of a hobby from your taxes. For example, if you create drawings for fun and sell a few on the side, the supplies are tax deductible.
• Cost of Commuting
You can't deduct your daily commute from home to office on your taxes, but you can deduct mileage when you drive for work during business hours, such as driving from your office to a meeting. Plus, if you use your car for business you may be able to deduct some of the costs of operation and maintenance.
• Teacher Benefits
This year for the first time, teachers will be able to write off up to $250 for school supplies on their income tax returns.
• Extra-Curricular Activities
Deducting money spent on day camp and after-school activities for your children is allowed on your tax forms, if it’s considered child care. Activities are deductible if you have not already put in for childcare expenses.
• New Location
Moving for a new job 50 miles or more away can boost your tax refund because you can deduct moving, storage and travel expenses related to your relocation. You have to work full time at the new job for at least 39 weeks the first year
• Give and Give Some More
Deductions for charitable donations can offer substantial tax savings, thereby making a large and profitable difference in your refund...as long as you keep a receipt. Donations must be made to a nonprofit that can prove 501(c)(3) tax status.
• Dues and Subscriptions
The subscription costs of professional publications that keep you updated about how to perform your job better can be deducted. The same is true of professional dues, such as those you pay to belong to unions or professional organizations.
• You Will Retire One Day
One of the most highly recommended ways to increase your tax refund is to increase your contributions to your retirement fund. Contributing to an Individual Retirement Account (IRA) not only facilitates saving for retirement, but placing money into the IRA lowers the total taxable income because it comes off the top. The more you contribute to the IRA, the less of your income is subject to taxes. Generally, the lower your taxable income, the less you'll owe in taxes, and the less you owe in taxes, the greater the refund.
Be careful, though, to make the IRA contribution by the deadline, and know your limits. There's a maximum amount that can be applied for lowering taxable income. Consult a tax professional to ensure your IRA contributions are made on time and in the right dollar amount.
Recent Deduction Benefits
A recent law includes new homebuyer credits that basically put thousands of dollars in some home purchasers' pockets. If you remodel your home and incorporate energy-saving improvements, you can receive credit for this eco-friendly act. You may also gain financial favor from the IRS if you purchase certain hybrid vehicles.
To take advantage of current tax laws, you might try one of two things. First, you can hire a tax accountant. It's the accountant's job to keep an eye on changing tax laws and how they affect your tax return.
Second, you can use a computer software program such as TurboTax. One of the features such software offers is a yearly update with new tax deductions and credit opportunities that have been affected by changes in laws. The software also has checks and balances built in to ensure you're taking advantage of available opportunities.
If you hate surprises, the Internal Revenue Service offers an on-line income tax calculator at their website www.irs.gov. Just answer a few questions and then they instantly (yes, instantly) this sophisticated income tax tool will calculate your expected refund or deliver the news that you owe a payment on your tax return.
Although some believe the IRS is an evil empire, officially The Internal Revenue Service is simply the nation's tax collection agency and administers the Internal Revenue Code enacted by Congress.
But if you want your refund as soon as possible, it always pays to file early. Statistics show that the IRS processes around 234 million tax returns annually.
For more ways to boost your return, check out our post on creative tax deductions.