Now that tax season is officially upon us, it’s high time to start going through your tax preparation checklist, which should always include looking into refunds. Whether you’re a veteran tax filer or brand-new to the process, learning about refunds is incredibly important, for no other reason than because it stands to benefit you financially. In this post, we’ll outline what refunds are, how they work, and how to maximize your returns to ensure you’re getting the most bang for your buck during tax season.
Setting the Scene: Taxes in the United States
Before we jump into the secrets behind securing more from your tax refund(s), let’s define exactly what refunds are, and how they work when filing income taxes in Charlotte, and the United States at large.
To understand refunds, it first helps to have a basis of knowledge for how taxing works in the United States. Taxing happens at both the state and federal levels, with every state creating its own method for taxing its residents. For instance, many states implement a sales tax, a tax that is added to the total cost of a bill when purchasing items and goods. Another method for taxing occurs through property taxes, which have individuals paying dividends on owned property.
However, the tax that we’ll be primarily focusing on in this post is income tax. In the United States, the federal government (and most state governments) implement an income tax, which is collected on an annual basis. Through this process, the government takes a percentage of a citizen’s income, the amount of which is determined by how much income an individual makes.
What is a Tax Refund?
It’s probably safe to assume that the vast majority of us aren’t necessarily eager to give up a portion of our hard-earned income. Nevertheless, taxes are crucial for building and maintaining a functioning society, making them a necessary evil for upholding our country’s infrastructure. Despite the nature of taxation, there are still ways to make filing income tax work in your favor, and they largely stem from the process of utilizing breaks and receiving refunds.
While tax breaks are often utilized as a preventative measure, tax refunds are issued when the filer has overpaid on their taxes. Refunds occur after a return has been filed and processed. If you are eligible for a refund (or return) you can request that the funds in question, be sent by direct deposit, paper check, or prepaid debit card. Regardless of how you receive your refund, they are always issued at the federal level by the IRS (Internal Revenue Service).
How To Increase Your Tax Refund
Now that we’ve outlined how taxes and tax refunds work, let’s get to the meat and potatoes of this post: how do you get a bigger tax refund?
If you are looking for ways to increase your tax refund, you should first and foremost be aware that there are several factors that will affect just how much you can get back from the IRS. These factors are determined at the individual level based on variables such as income, deductions, credits, and withholdings. Even major life events like getting married, having children, retiring, and/or buying a home can impact your returns. This is why it’s crucial to never make assumptions about your specific refund based on what others may tell you, as every tax filer is different in terms of circumstances. With that in mind, here are some of the most effective ways to ensure that you get the most out of your tax refund:
-Claim Applicable Credits and Deductions: As you work towards completing your tax return, make sure that you have claimed all of the deductions and credits that you are potentially eligible for. You’ll want to explore these options because deductions reduce your taxable income, while credits reduce your tax liability. As for some of the most common credits and deductions? You can receive them from mortgage interest, medical expenses, education costs, childcare expenses, charitable donations, earned income, retirement savings, and energy efficiency plans. However, the aforementioned are just the tip of the iceberg, as you’d be surprised to find out just how many potential deductions and credits there are in existence. This is why it’s a good idea to always save your receipts and consult either a tax professional or employ tax software to determine what you may qualify for.
–Adjust Your Withholdings: Withholdings are the amount of tax that is automatically taken out of your paycheck by your employer. If you withhold too much, you will receive a bigger refund come tax season, though, this will also mean you have less money in your pocket during the year. Therefore, you can adjust your withholdings by filling out a new W-4 form and turning it over to your employer. Remember to consider all of the necessary variables including income, deductions, credits, filing status, and dependents when choosing your withholdings.
-Contribute to Your Retirement Accounts: Many workplaces offer retirement planning through designated retirement accounts like a traditional IRA, 401k, or other qualified plans. By contributing to your retirement account, you can in turn reduce your taxable income, and effectively save for your future. In the case of the retirement account, the more you contribute, the bigger your refund will be. Keep in mind that you should check the contribution limits and deadlines for each plan ahead of time, to ensure that you meet all of the necessary criteria.
–Time Your Income and Expenses: Finally, you can potentially maximize your refund by timing your income and expenses. For instance, let’s say you anticipate you’ll potentially earn more money throughout the next financial year, in this case, you may want to defer some of your income to that year, such as bonuses, commissions, or self-employment income. Doing so can help you to lower your taxable income and avoid being pushed into a higher tax bracket. On the flip side, if you believe the opposite to be true, you can always accelerate some of your income to the current year, which can be done by selling assets, withdrawing from retirement accounts, or taking distributions from your trusts. In either context, taking proactive measures can help you get the most out of your refund.
When In Doubt: Seek a Professional Opinion
Taxes can be complicated, and the right pathway forward isn’t always evident. This is when hiring a tax professional can come in handy. Having dedicated their lives to financial work, tax professionals can help you get the most out of filing your taxes, whether that be through deductions, write-offs, or refunds. Regardless of how you move forward, make sure you look into all of your potential refund options to get the most out of tax season.
If you are local to the greater Charlotte NC area look no further than McGrant Tax & Bookkeeping. As a business that has been successfully operating for more than 27 years, we have established ourselves as a firm that Charlotte’s personal and professional tax filers have trusted and relied on for decades. To learn more about the ways that we can help you with your business tax preparation services in Charlotte NC, feel free to contact us today at any of our two locations or visit our website https://mcgranttax.com and book an online or physical appointment.
This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her attorney, business advisor, or tax advisor concerning matters referenced in this post. McGrant Tax and Bookkeeping assumes no liability for actions taken in reliance upon the information contained herein.
