No one likes filing their tax return each year. However, it is something that we all have to do as American citizens. While filing a tax return and paying taxes may not be optional, it doesn't mean that there aren't opportunities to lower your tax bill. What are some easy steps that may help you get the largest refund from your 2016 tax return?
Make Sure Your Withholding Status Is Correct
The reason why most people get a refund each year is because they have too much taken out of their paycheck each year. Typically your withholding number is one, which means you have the standard amount taken out of your check each pay period. However, depending on how much you make, you may want to adjust that so that your overall tax bill at the end of the year is as close to $0 as possible. Although getting a refund may be nice, getting more from each paycheck is even better.
Put Money in Your 401K or IRA
Contributing to your retirement accounts enable you to save money on your taxes while watching those accounts compound tax-free from several years to come. In 2016, you are able to contribute up to $5,500 to an IRA and $18,000 of income to a 401K. Those who are over the age of 50 may be entitled to additional catch-up contributions. You may also be able to claim a retirement savings credit depending on your income and how much you contributed throughout the year.
Are You Self-Employed?
If you are self-employed, you may have a wide variety of deductions that you can take to reduce your tax burden. For instance, you can deduct your car payment if you lease a business vehicle. You can also take deductions for mileage and maintenance of a business vehicle.
You may also be entitled to take deductions for a second phone line, a home office and other expenses that are normal and ordinary for your business. In some cases, you may be able to use business losses to create a larger refund or to offset taxable income.
For instance, if you made $50,000 from a day job and lost $5,000 in a business venture, you would only pay taxes on $45,000. Those who are self-employed also have the opportunity to lower their profits by paying employees or putting money into a self-directed 401K or IRA. If you do write-off some or all of your expenses, make sure that you do so honestly.
Did You Go to College in the Past Year?
If you have gone to college, there are tax credits available to help defray a portion of your college tuition. If you are a parent of a child who went to college, you may be able to claim a credit if your child is still a dependent. For those who are still paying off student loans, you may be able to claim a deduction for up to $2,500 paid in student loan interest in the past year.
Do You Have Children?
Those who have minor dependents may be able to claim a deduction for each one they have. Deductions are generally higher for minors who are under the age of 17, and the earned income credit may be available for parents who make below $15,000 a year. In fact, those who don't have kids may also be eligible for the EIC if they are childless if they make less than $13,000 a year.
Before you file your tax return this year, make sure that you have gotten as many deductions and credits as possible. While the tax deadline is April 15, the IRS allows taxpayers to get an extension until Oct. 15 if you aren't ready to file and don't want to miss out on any savings.