Americans generally dread the month of April because of the chance that they might owe money the Internal Revenue (IRS) instead of receiving tax relief in the form of a refund. However, even though there is a chance that money will be owed even after federal income taxes have been taken out of each paycheck during the year, there are some strategies that can be followed to maximize tax savings and increase the odds of a tax refund. Here is a simple guide to increasing your odds of finding tax relief on your personal income tax return.
Things You Will NeedReceipts from tax-deductible purchases, IRS form 1040, Pen
Step 1Make contributions to retirement plans approved by the IRS. Many employers offer tax-deferred 403b and 401k plans, which allow users to make pre-tax contributions and lower the amount that is deducted each paycheck, and potentially, the total amount that is due at the end of the year. Contributions to a traditional IRA will also lower your tax liability at the end of the year and potentially lead to greater tax savings.
Step 2Choosing to itemize your tax deductions can also increase your odds of finding tax relief. This is especially true if you own a home with a mortgage, because your total interest payments can be far greater than your standard deduction. Consequently, your taxable income can often be lower at the end of a year, making it more likely that you will receive a tax refund. If you itemize deductions, make sure to keep track of medical expenses, charitable gifts, non-reimbursable job expenses, and more, since all of these can be deducted.
Step 3Consider deferring your capital gains, as this can help you save a lot of money on your federal income tax bill. If you wait to sell your shares in a year when your other taxable income is lower overall, you will not owe as much on your taxable income. Also, remember that you can carry capital losses that you cannot take one year over into the next year, and this can help you save money in the future. If you have any questions about tax rules for the stock market, consulting a tax attorney can help you immensely.
Step 4You will find tax relief from the IRS when you take advantage of the various tax credits. This is the most direct way to lower the tax that is owed, as credits count against the final tax bill and not your taxable income. Parents are eligible for child tax credits, and there are other credits for education expenses, energy-efficient home improvements and more. Read your federal income tax return carefully and see what you qualify for.
Step 5Do not underestimate the benefits that a tax attorney can offer you. Throughout the year, these lawyers can help you structure your contracts and other agreements to maximize your tax savings. They can also be invaluable if you are one of the unlucky few whom the IRS chooses to audit each year.
Tax relief can be enjoyed when taxpayers take the time to do a little research and keep careful records. Follow these steps and you should be able to save money each year on your taxes.