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by JD Esajian | @JDEsajian www.fortunebuilders.com
As each tax season comes around, many folks are plagued by one simple question: How do I increase my federal tax refund?
While April 14th, the day before the income tax return deadline, is probably a little late to start exploring many of the tax saving strategies we’ll go over, there are some simple things you can do (even last minute) to reduce your tax liability and make filing taxes a less onerous process.
So, whether you’re planning ahead and trying to get a jump on next year’s income tax return or desperate to find tax savings immediately, here are four ways to boost your federal tax refund and put more money in your pocket.
How To Increase Your Federal Tax Refund
1. Increase Your Withholding
If you’re a full-time employee, working for someone else, one of the easiest ways to boost your refund in the spring is to increase your withholding, and reduce the amount of exemptions you claim.
Exemptions, or allowances, work this way: the more people you have living in your home (that depend on you as a primary source of support) the more exemptions you are allowed to claim.
The trouble with claiming the maximum amount of exemptions is that it reduces the amount your employer withholds from your check. (Good in the short-term; risky proposition in the long-term.)
So, unless you have a focused plan for what to do with that extra source of monthly revenue — and if you do, then it might be a good strategy — let your Human Resources department know you’d like to drop one of your exemptions. (Which will withhold more money each month from your paycheck, and put you in a much better tax picture come next spring.)
2. Adjust the Timing of Your Expenses
Though there’s no direct correlation between the time you file a return and the size of your return — despite what many blogs and message-board threads may assert — there is a clear advantage to keeping an eye on the calendar and making sure appropriate (and needed) expenses are paid within a specific calendar year.
This includes doing things like:
3. Don’t Fear the Itemized Deduction
As a taxpayer you have two options when it comes to deductions: itemized deductions or the standard deduction. And the latter is just what it sounds like: a flat number (which changes each year) in which you deduct a set amount of money for expenses and don’t deal with the paperwork of itemized deductions.
Unfortunately much of the big tax savings you can accumulate is found in the itemized deductions. With an itemized deduction you have to account for every expense. (The trouble is most taxpayers don’t cross the expense threshold in which they’re able to use itemized deductions.)
However, with a bit of organization and planning, you can enjoy the tax savings of itemized deductions by tracking expenses such as:
4. Start a Home Business
When it comes to tax saving strategies, there may be no more effective (and profitable) method than starting your own business. Here at Fortune Builders, obviously, we extol the tax benefits of real estate investing — and encourage our students to explore the many real estate investment tax deductions out there — but these methods work regardless of what type of business you’re looking to create.
Small business tax deductions include:
These are just a couple of the options available to small-business owners. Redevelopers searching for real estate investing tax strategies can find many more areas to reduce tax liability. Just know, no matter what type of business you create, the tax code is created to reduce your tax liability and give your business a chance. So, it’s in your best interest to take advantage of this fact.
Every Little Bit Counts
The secret to increasing your federal tax refund is understanding that tax liability operates like a a pendulum. At first, nothing happens, and the steel ball in a pendulum stays still, motionless. But with just a little bit of a push, momentum builds and before you know it the pendulum on your desk swings from side to side.
Your tax liability works the same way. Small actions may not make the difference, by themselves, but when put together they can create massive momentum in increasing your tax refund. Which gives lets you keep more of your wealth and invest in areas you prefer to direct your money towards. Even if that just means buying the nicest desk pendulum you can find.
Posted on 04/05/2017 at 11:00 AM