4 Quick Ways to Get a Bigger Tax Refund
As we get closer to the April 15th filing deadline, it’s important that you take advantage of every opportunity available to lower your taxes.
Last year the IRS issued almost 122 million refunds, and here are a few tax tips you can use to make sure Uncle Sam sends you the largest refund check possible.
Increase Your Retirement Contributions
One of the fastest and easiest ways to lower your taxes is by contributing as much as you can towards your retirement accounts.
For most of us, this means adding money to an IRA (individual retirement account). The benefit is that when you contribute to your IRA, your taxable income is reduced by the same amount.
With a traditional IRA the maximum you can contribute for the 2019 tax year is $6,000. If you are over the age of 50, you can contribute an additional $1,000.
The great news is that you can contribute up to this year’s tax deadline and still claim the deduction against last year’s (2019) taxes.
If you are self-employed and contributing to a SEP-IRA (Simplified Employee Pension IRA) you can contribute 25% of your net earnings, up to a maximum of $57,000.
Start a Health Savings Account (HSA)
With an HSA, you are setting aside money to pay for future medical bills like doctor visits, prescriptions and dental care.
Like an IRA, your contributions are pre-tax, helping to lower your overall tax bill. You can contribute up to $3,500 if you are single or up to $7,000 if the coverage is for a family, and if you are over 55 you can add an extra $1,000.
An additional benefit of HSA’s is that any unused money can roll over from year-to-year, so over time you can build up a nice nest egg that can be invested. And because the contributions are pre-tax, any gains are tax-deferred.
Deduct Investment Losses
If you lost money on some of your investments, you can turn that loss into a win by using it to offset some of your capital gains.
For example, let’s say you sold a few stocks that went up in value and you now have a capital gain of $6,000. If you also took a loss of $2,000 on a few bad stock picks, you can use this loss to offset your capital gains.
Instead of paying a capital gains tax on the $6,000 profit, you can deduct the $2,000 loss from your profit to reduce your capital gain down to $4,000. So you only pay capital gains tax on the net gain of $4,000.
The maximum you can deduct each calendar year is $3,000. Any losses above that can be carried forward to the next tax year.
Itemized vs. Standard Deduction
For single filers the standard deduction for the 2019 tax year is $12,200 and for married couples filing together its $24,400.
Most taxpayers simply elect to take the standard deduction. It’s quicker and easier, but for some taxpayers, it pays to itemize.
If your deductions for mortgage interest, state and local taxes, personal property taxes, etc. are more than the standard deduction, go ahead and itemize to reduce your overall taxable income.
Nobody likes doing their taxes, but don’t be afraid to spend a few minutes looking them over to make sure you are taking advantage of as many tax breaks as you can to reduce your tax bill.
As always, if you have any questions please meet with a tax professional.