If you received a large refund this year, you may want to consider changing your tax withholding. While some prefer to receive the yearly lump sum, having less withheld means you don't have to wait to get your money back with no interest. (tip courtesy of Carol McCoy)
If you're not claiming all of the tax credits for which you are eligible when you file your federal tax return, you may be paying too much income tax. Understanding these credits may significantly reduce your tax liability.
Tax time is when many filers scramble to pull everything together, but it doesn't have to be. Once you have everything together from filing your tax return, keep going with your organization throughout the year. Even if it's something as simple as keeping everything in a box, at least it will all be in one place when it comes time to file your return the next time around.
Filing a tax return is up there with a dental visit as least favorite activity for many people. But cheer up, you may be in for some tax benefits. And the IRS won't lecture you about flossing!
One of the biggest areas for tax credits and deductions is education related expenses. If you don't have enough deductions to make it worthwhile to itemize (over $6,100), take heart. Even standard deduction takers qualify for these:
- Deduction for student loan interest of up to $2,500 of interest paid. Taxpayers with adjusted gross income less than $75,000 ($155,000 if filing a joint return) qualify.
- Lifetime learning credit for undergraduate, graduate and professional degree courses and expenses.
Other ways you may be able to whittle down your taxable income include:
- Retirement saver's credit. The amount of the credit is a percentage of your retirement plan or IRA contributions, up to $2,000, $4,000 if married filing jointly.
- Moving expenses for a new job. You can deduct these if you meet certain tests for distance and time. Expenses must generally be incurred within one year from the date you first reported to work at the new location.
- Childcare expenses. You can claim a credit of up to $3,000 for one child or $6,000 for multiple children.
Want to save even more on taxes next year? Take full advantage of tax-deferred plans such as your company's retirement plan or a flexible spending account. The maximum contribution for 2014 for 401(k) and certain other plans is $17,500. You may not be able to hit that mark for a while but do what you can. Even more good news, it's super easy to track your refund just using your phone with IRS2Go. Remember, using a tax professional, like a CPA, can help make your tax filing less like a root canal, and more like a walk in the park.
Deciding what to do with your tax refund? Instead of trying to choose whether to pay off debt, save it or use it for something fun, why not do it all? Try the 3-3-3 approach: use one-third to pay down your highest interest rate debt, one-third to pad your emergency fund and one-third to spend on something fun. This way you're moving closer to your long-term goals without totally giving up an immediate reward.
Every year the IRS releases a list they call the "Dirty Dozen" tax scams, which is a list of fraudulent schemes that have been detected. This isn't the entire list, but here are the big ones to watch out for.
Phishing schemes: These scammers use fake emails or websites to trick you into entering your personal information so they can steal your identity. One way to avoid being taken for a digital fool is not to click on an email link, no matter how legit it looks. Instead, open up a new browser window and go to the sender's website on your own to see if it is real.
Phone scams: This scam has been going on for years and often targets immigrant or elderly taxypayers with threats, such as arrest, demanding the person pay overdue taxes immediately. If you receive a call like this, hang up immediately. If the IRS is truly trying to get in touch with you, they'll most likely contact you by mail, not phone. Call the IRS directly If you're worried you actually do have a tax problem.
Identity theft: The best way to protect yourself from tax-related identity theft, beyond protecting your personal information, is by filing your tax return ASAP. Don't worry, if you owe taxes you can still file before the deadline and pay on the due date. Also, check out this list of organizations you can contact to combat identity theft, especially during tax season.
Return preparer fraud: Any tax preparer who promises overly large refunds or seems shady could be a scammer. The IRS offers this list of pointers to protect yourself.
Fake charities: If you're thinking about giving money to a charitable organization that you don't know much about, check to make sure they're a reputable charity on this website.
The bottom line is listen to your instincts and be fiercely protective of your personal and log in information. If something seems fishy, do some research first.