So now that the Happy New Year smoke has cleared and New Year’s resolutions are settled in, the next big thing that is on everyone’s mind is the love of our life… No, not Valentine’s Day, but those dreaded taxes that we have to file each and every year. For some reason taxes have gotten a bad rap, but truth be told if you knew the secrets, you would fall in love with doing your taxes more than Donald Trump loves hair pieces (they’re not really secrets but it sounded cool to say). Face it, you work hard and meet your obligations all year round, so why shouldn’t you be rewarded for doing what you’re supposed to?
You absolutely should be rewarded! And to help you reap those rewards, check out the following five tips for filing taxes that will help you start to fall in love with the process.
Lovely Tips for Filing Taxes
1) You can use your withholdings to get back more of your paycheck.
If you’re employed full-time, the first thing you should do is check your withholding and increase it, if necessary. When you were hired, you completed an IRS tax form called a W-4 which determines your tax withholding.
Your tax withholding determines how much money is going to be withheld from your paycheck each pay period. Many people do not understand its implications and are likely to choose 0 or 1 which is a number that represents your exemptions.
Option 1. When I first started working, I remember that people would advise me to claim zero so I could get more money back at the end of the year. However, when you claim the least amount of exemptions, more money is withheld from your paycheck for tax purposes. In essence, you’re giving the government an interest free loan on your money that could be used
for your own personal savings.
Option 2. In the reverse, when you claim more exemptions, less money is withheld in taxes. If you take this route, increase your exemptions enough so that you are paying the IRS exactly or close to what you would owe in income tax. The extra money that you will receive in your paycheck should be used for saving in a high-yield savings account, investing, and making your money work for you. This is the better option and what I would recommend.
Be careful that you are not increasing your exemptions just for the sake of increasing them, because if the exemptions are not justified you can wind up owing money, and we definitely don’t want that! Check with your tax accountant before you decide to adjust your withholdings.
2) You can possibly get tax credits and deductions for higher education.
For many Americans, especially millennials, student loans are one of the most concerning things keeping them up late at night. But, most don’t realize that they may be eligible for many deductions that will give them a bigger return come income tax time.
For example, the student loan interest deduction allows you to deduct the amount you paid in student loan interest, up to $2,500 per year. Some other deductions include: the American Opportunity Credit and the Lifetime Learning Credit. Visit IRS.gov for a complete list of deductions.
3) Staying healthy can come with financial kickbacks.
With the rising cost of health insurance these days, it may be tempting to forgo health insurance and take your chances however, not only would that be a big health mistake, but it would also be a big financial mistake due to the penalty charged to those who are uninsured.
One thing that may make you fall in love with taxes is the fact that you can contribute to a Health Savings Account (HSA). In order to pay for those high deductible health insurance plans pre-tax, contributing to an HSA can save you thousands of dollars when you file your taxes. For the 2015 tax filing year, the minimum annual deductible is $1,300 for individual coverage and $2,600 for families and the maximum annual deductible and other out-of-pocket expenses is $6,550 and $13,100 for families.
4) Doing good can be financially rewarding.
There are two universal laws that I live by: 1. “the more you give the more you get” and 2. “to whom much is given, much is required.”
Not only is giving back a noble thing, but it can also help give you substantial
tax savings. If you made donations to a charity, you may be able to use them as deductions on your taxes. To qualify, your donations have to be made to a nonprofit organization that can prove they have 501(c)(3) tax status. Legitimate charities usually have their status clearly stated on their websites, or you can verify it directly from the IRS by visiting http://www.IRS.gov/charities, then click on the tab that says Contributors.
The second criterion is that you must have a receipt from your donations. Not all of your donations count, and there are limits on what can be deducted, so make sure you check with a tax accountant to verify your eligibility. Some common deductions include real estate, furniture, clothing, cars, electronic equipment, office supplies, mileage, cash donations, and tithes paid.
5) Your side hustle can pay your dividends.
We now live in a time where starting a business is not only easier than ever, but it can be done with low overhead, which results in showing a profit earlier on. With many people now taking the leap of faith to become their own bosses, it would behoove you to take advantage of the many associated benefits.
Starting a home-based business can cause two things related to your taxes to happen. First, with your initial investment into the business, it can increase your tax refund. And secondly, you can deduct things like your home office, telephone, Internet service and office supplies. The deductions aren’t anything to sneeze at either. On average, a home-business can bring in around $3,000 to $9,000 in tax savings. The great thing is that it doesn’t matter whether you run your business full-time or part-time—you can still benefit from running a home-business.
Starting to fall in love with the idea of filing your taxes as much as you already love mobile banking? 😉 Just remember that in all things, love is a process!
The views and opinions expressed by the author are not necessarily those of BankMobile. The blogs are intended as general financial knowledge that may or may not be applicable to your individual needs. Always contact your accountant for tax advice.
All company/product/service mentions in this post are not intended as an endorsement and the views of that company do not represent the views of BankMobile or Customers Bank.