Depending on whether you are required to cough up some unexpected tax money or you are owed a refund, tax season can either seem like doomsday or like Christmas in April. Even though most people dread the filing process, it is more than worth it to discover that you have a sweet refund check headed your way afterward. What you choose to do with that money is up to you—use it for a tropical vacation, buy yourself a new gadget, or improve upon that credit score and put it towards chipping away at your debt. What I want to share with you are some tips for getting the most out of your tax return, and to remind you of certain tax credits that you might not be aware you are eligible for.
1. Put some money into that IRA while you still can
First of all, if you don’t already have an Individual Retirement Account (IRA), I cannot urge you strongly enough to open one. I personally put a lot of weight into preparing for the future, and it sounds corny but it really is never too soon to start. Even if you don’t have one, read on to learn how it can be to your tax advantage to open one. If you do already have one, pat yourself on the back and remember that one of the easiest ways to increase the chances of a tax return is contributing to your IRA. The money that you put into an IRA is non-taxable, so the more you put in, the lower your total taxable income is. Publication 590 on the IRS website states, Contributions can be made to your traditional IRA for a year at any time during the year or by the due date for filing your return for that year. Because April 15, 2012, falls on a Sunday and Emancipation Day falls on Monday, April 16, 2012, the due date for making contributions for 2011 to your IRA is April 17, 2012. I recommend taking advantage of the extended deadline and increasing your shot at a bigger tax return.
2. Collect on EITC
EITC stands for the Earned Income Tax Credit and is designed for people who make less than $49,078 annually to give them a boost. I stress looking into this tax credit this year more than ever, in light of the past couple of years’ downtrodden economy. I have a hunch there are lots of workers out there whose earnings dropped last year, and who will therefore qualify though they might not have in previous years. Even if you are skeptical that you will qualify, it doesn’t hurt to check. The Salt Lake Tribune reported that last year 26.8 million American taxpayers received a whopping $59.5 billion in EITC, with the average EITC refund clocking in at $2,200. But an estimated one out of five eligible workers and families still miss out on the tax credit because they either didn’t claim it or didn’t file a tax return. Don’t be that one in five. It only takes a few minutes online to see if you qualify, and you can’t get any money back if you don’t try. IRS Publication 596 is the place to go to check out this baby. It is dependent on income, age, and the number of children you have, so punch in the honest answers to all questions and see if you’re eligible.
3. Take Advantage of Free preparation assistance
The IRS stated that during the 2012 tax season, more than 12,000 free tax preparation sites will be available throughout the U.S. to provide aid to low and moderate-come taxpayers and families, and the elderly. The IRS provides a tab on the homepage of their website titled Help for Taxpayers, which includes a page dedicated to helping taxpayers find out if they qualify for free tax return preparation. The two main organizations working to provide free tax help to eligible taxpayers are the Volunteer Income Tax Assistance (VITA) and the Tax Counseling for the Elderly (TCE). VITA offers tax help for those whose annual salary is less than $50,000 and TCE gives free aid to priority assistance taxpayers who are above the age of sixty.
4. Report those Donations- they add up!
Step one, obtain a receipt for all charitable donations including cash donations, household items, and clothes. The receipt should list, in some form, a description of the donation, amount (if cash), items donated (if non-cash), your name, and the date donated. It can be tough to figure out the value of donated goods, to Goodwill or the Salvation Army for example. The Salvation Army has a nifty guideline to determine the value of such donations, for everything from women’s clothing, to furniture, to sporting goods. So step two should be making a list of all donated goods and figuring out their estimated value, which might turn out to be worth more than you thought. A further heads up, if you haven’t been claiming contributions to your kids’ schools, Boy Scouts, and church, you should start! Some people also miss deducting the miles driven and other travel costs associated with volunteering. Things that you may NOT deduct include money donated to profit organizations, the money given to a political campaign/party, or putting a price tag on the time you spent volunteering.
5. Check out these 3 Tax Credits to see if you’re Eligible
Dependent on your personal situation, you may or may not be eligible for the following three credits: Child and Dependent Care Credit, Child Tax Credit, and Retirement Savings Contributions Credit. The Child and Dependent Care Credit (IRS Publication 503) is for expenses paid for caring for children who are under 13 years old, (or for a disabled spouse/dependent), while you are either working or looking for work. The Child Tax Credit (IRS Publication 972) is for parents who have a qualifying child or children, and can definitely be claimed in addition to the Child and Dependent Care Credit. Lastly, the Retirement Savings Contributions Credit, aka the Saver’s Credit, (IRS Publication 590) is aimed at helping low/moderate-income workers save up for their retirement fund. You might qualify if your income is below a certain limit and you actively contribute to an IRA or 401(k). Like I said before if you have never qualified for these credits before, it’s worth a look if your financial, work or marital situation has changed over the past year.
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