Wondering how to maximize your tax return? Commonly missed deductions, the wrong withholding number and DIY tax preparation are often the main reasons taxpayers end up paying too much.
Wrong withholding number
This is a big one, because it has you overpaying all year. Depending on how much you have to pay or how much you get back at the end of the year, you might need to adjust your withholding number.
How to adjust your tax withholding
There's a very easy way to determine if you're using the wrong withholding number: You're either getting massive refunds or you're owing a ton at the end of the year, every year. Either way, you're not paying the right amount of taxes.
While most experts believe it's good to overpay a little bit so that you get a refund (which is often spent more wisely than the money would be if you were getting it on a weekly basis), no one thinks that you should pay so much that you're struggling to make ends meet.
If you think you need to change your withholding, ask your employer for a new W-4 form.
If there's one universal piece of advice that all tax professionals give, it's that you should take every deduction legally available to you. Deductions vary depending on how many children you have, what you do for a living, if you work for yourself and what you spent money on over the last year.
The best way to go about making deductions is to literally save every single receipt that you get over the course of the year and go through them at tax time with a professional tax preparer. Do some poking around the internet to see what deductions exist for you. For example, there are a number of deductions related to purchasing and selling a house, searching for a new job and most business expenses, as well as the donation of physical goods and money. Keep track of your spending over the year, then find out what you can deduct.
Tax deduction changes
Not all tax deductions exist all the time. Some are only around for a couple years and then disappear.
Because there are so many new deductions enacted every tax season, even with some research you might miss key deductions that can save you hundreds or thousands of dollars. Keep abreast of the changing landscape with regard to deductions by checking the IRS website for new deductions you can take advantage of. Also be prepared for missing deductions that you once claimed.
While you can prepare your taxes yourself, if you're doing itemized deductions rather than taking the standard, you would do well to hire a professional tax preparer. This will make your life much easier, particularly if you're saving receipts throughout the year. You can just hand that pile of receipts over to your accountant or tax preparer and have them work out the rest for you.
It might cost some money up front, but there's a very good chance that it will save you money in the long run. And even if that's only a couple hundred dollars, wouldn't that money be better spent on investment, retirement or something that your family wants as opposed to flushing it down the tax toilet?