In a perfect world, the government would withhold the exact amount of money you have to pay in taxes from each of your paychecks or other income.
That way, you wouldn’t be required to pay taxes on April 15. And the government wouldn’t have to mail refund checks.
As we well know, this is not a perfect world. And while getting a refund check is nice, it really means that the government has been holding onto your money all year.
And if you owe the government money come April 15, hopefully you’ve put it aside and are prepared to make that payment.
8 refund-loving tips
If you love tax refunds, The Motley Fool has a few tips for you. They are a financial services company that provides financial advice for investors. Here are eight of those tips.
Claim the best filing status you can. Sometimes filing individually rather than jointly as a married couple can be beneficial. Surviving spouses can claim qualified widow or widower status. Filing as a head of household offers a standard deduction of $18,000.
Use the earned income tax credit if you qualify. Low and middle-income taxpayers can claim the earned income tax credit. The largest credits go to those with children. If you don’t owe taxes, this credit could result in a refund.
If you’re a parent, use the child tax credit. If your child is under 17 years of age, you qualify for up to $2,000 in tax credits per child. Good news for parents is that the income level to claim this credit went up for the 2018 tax year.
Be smart about itemizing or using the standard deduction. Some people never itemize because they don’t want to go through the hassle. But sometimes itemizing can cut a tax bill. It’s worth looking into if you’ve saved receipts from 2018.
Use the American Opportunity tax credit if you or your child is in college. This tax credit lets you claim 100 percent of the first $2,000 of eligible college expenses against your tax bill for each of the first four years of undergraduate education. Plus 25 percent of the next $2,000. Check on income limitations.
Don’t forget to include all of your withheld taxes on your return. Make sure you don’t leave any money on the table by failing to claim amounts of money that were already withheld for taxes. Such as for pension plan or retirement account income.
Take advantage of tax-favored retirement accounts. You can still make a tax-deductible contribution to a traditional IRA, as long as it’s done by the April 15 filing deadline. This does not apply to 401(k) contributions, which had to have been made during the 2018 calendar year.
Use a health savings account if you can. If your health insurance coverage includes high deductible amounts that meet federal guidelines, you can qualify for a health savings account by setting aside $3,450 (single person) or $6,850 (family). For those 55 and older, contributions of $1,000 are available.
Lighten the load
Almost all of the tax-savings strategies for the 2018 tax year expired on January 1. But if you are going to owe the government money on April 15, there are still a few things you can do to lessen that amount. Here are three of them:
- The Tax Cuts and Jobs Act created more than 8,700 low-income opportunity zones in the U.S. Those who invest in these zones through qualified funds can defer or avoid taxes on capital gains they’ve made elsewhere.
- If you’re self-employed or a small business owner, the timing of when you received payments could be a factor. You could look into changing your method of accounting from accrual to a cash basis, or vice versa.
- If a small business owner earns less than $315,000, he or she can take the “qualified business deduction.” This is a 20 percent deduction on income before itemizing other deductions.