F.J. Raymond is credited with saying, “Next to being shot at and missed, nothing is quite as satisfying as an income tax refund.” While this may be a bit of an exaggeration it is true that a large tax refund can make you feel like Christmas came twice.
Nobody takes great pleasure in filing income tax forms. But if you use discretion and fill those forms out strategically, you could be rewarded with a handsome tax return for your efforts. The first, and most important, step is knowing which tax forms you need to fill out. Many people find these forms intimidating, frustrating, and more difficult to decipher than stereo instructions. But knowledge is power, so let’s take a look at the different tax forms and discuss when it is appropriate to use them.
The Long and Short of It
- 1040EZ (very short form)
This is by far the shortest and most straightforward of the income tax forms. But don’t allow yourself to be too drawn in by its simplicity – it can only be used by people who fulfill a number of requirements including having less than $100,000 total annual income, less than $1,500 total interest income, under 65 years of age, no income adjustments, and income that stems exclusively from wages, interest, or unemployment. Using 1040EZ also only allows you to claim the standard deductions and the Earned Income Credit. Therefore, this form is short and sweet, but usually won’t maximize your deductions.
- 1040A (short form)
The vast majority of American taxpayers can use form 1040A. This form still requires that your total annual income be less than $100,000 but all other areas are more flexible than the 1040EZ. For instance, you can be any age, any filing status, have income from a variety of sources like Social Security benefits and IRA, claim certain income adjustments, and claim tax credits such as the child tax credit or education credits. Form 1040A gives you more flexibility in filing. However, it is very important to note that you cannot itemize your deductions in this form.
- 1040 (long form)
Form 1040 can actually be used by all American taxpayers regardless of their financial circumstances. It is by far the longest tax form, but that also means it is comprehensive and can accommodate any and all tax situations. A big advantage of using 1040 is that you can itemize your deductions, which can help you boost your refund. Although anyone can use it, you must fill out 1040 if you have a total annual income of more than $100,000, want to itemize deductions, have income stemming from a rental or business, receive foreign wages, are claiming other adjustments to income such as tuition, or have sold bonds, stocks, or property. Again, the 1040 takes more time and patience to fill out, but gives you the ability to make itemized deductions.
General Tips for Maximizing Your Refund
- Increase Your Withholding
This is something you can do well before you have to tackle the aforementioned income tax forms. Generally, you can change the number of exemptions you claim on your W-4 at any time.
- Deduct Charitable Donations
You can get a huge refund boost by deducting charitable donations including donated property, cash, car mileage, and even tithes for religious institutions.
- Pad Your IRA
By increasing your contributions to your IRA (Individual Retirement Account), you’ll decrease your total taxable income while helping ensure that you have a financially secure retirement.
- Consult With a Professional
The most important step in optimizing your deductions and thus the sum of your tax refund is consulting with an expert in the field of taxes. Tax resolution firms that specialize in tax solutions can help you make sense of the often confusing financial jargon and forms to make sure you get the most deductions possible.
By following these tips and soliciting the advice of a tax attorney, you will be able reap the benefits of a better refund.
Written by Randy Otis of Levy Tax Help.