Filing your income tax return can seem daunting at first. One of the most important decisions you’ll make each year is choosing your tax filing status. There are five options, but in some cases, you’ll qualify for more than one. There are usually two scenarios when it comes to filing taxes: 1) you didn’t pay enough taxes in throughout the year, so you owe taxes, or 2) you paid too much in taxes over the year, so you get a refund, or the IRS owes you. Choosing the proper filing status helps ensure you are paying an appropriate amount of taxes out of each check. This way you are not stuck owing taxes, and it keeps you from overpaying in taxes too, which means you get to keep more from each paycheck during the year. You’ll need to determine which filing status will best suit you and be the most advantageous.
Another choice you’ll have to make is whether to use itemized or standard deductions. Since tax laws can change yearly, recent increases to tax deductions may have most taxpayers choosing the standard deduction for simplicity. For others, itemizing can save a great deal of money at tax time. The IRS allows taxpayers to deduct things like property taxes and medical expenses under certain circumstances. Most tax professionals will advise you if you’re better off taking the standard deduction or itemizing your return. If you do itemize, you’ll need to have documentation for your deductions.
Once you’ve gone through the form and the income tax return is complete, there are several ways to file taxes. Verifying your calculations with or using a tax professional from the start can help ensure you find the most advantageous return.
Tax professionals will ask you questions about major life events that can affect the bottom line. Marriage, paying for college, having children or purchasing a home are all situations in which a tax professional can find deductions that reduce the amount of what you owe.
Again, tax laws may change from year to year. For example, recent changes in 2018 tax laws are for the years 2018 through 2025 only, and tax professionals have been reading up to provide the best information that will benefit their clients.
Another way to use your tax refund wisely is considering retirement. Fidelity recommends that to keep your standard of living in retirement, you should have one year of salary socked away by the time you turn 30. 40-year-olds should have three times their salary saved. By 50, you should have six times your salary saved. Your tax refund can help achieve those goals. There are several options of tax-deductible IRAs that you can choose from that allow you to utilize your tax refund for retirement.
Need a quick tax refund? While there are some exemptions, submitting your tax return on time is the best way to receive your refund sooner. If you’re able, filing early – around January or February -can speed up your tax return. If you need the money sooner rather than later, you could also opt for a tax advance loan. This type of loan will advance a portion of your anticipated refund to you and is often provided by tax preparation firms. This can be advantageous for those with an Earn Income Tax Credit (EITC,) as the IRS did not fund these returns until almost the end of February in 2018.
If you do owe taxes, you may be able to request an extension. A trained tax professional can help you with this as well.
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