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Tax Season Tricks to Get the Best Return

Most people dread tax season. But maximizing your return with a few minor tweaks in the way you file could take a bit of the anxiety out of filing your taxes. Reevaluating your W-4, reconsidering your filing status, and claiming the earned income tax credit are just a few ways you can get the biggest return possible on your income taxes. So, stop dreading filing your taxes and start looking forward to a big return by following these simple tips.

Know the Difference Between a Credit and a Deduction

This is a key difference that many people don’t understand. A deduction reduces your taxable income while a credit reduces your tax. So if you are in the 15% tax bracket and you get a $100 deduction that would reduce your taxable income by $100 and save you about $15 in taxes. But if you get a $100 credit that would reduce your taxes by $100 and if you don’t owe any taxes it will get you a $100 refund (even if you had zero dollars withheld from your paycheck).

During Tax Season Reevaluate Your W-4

Tax SeasonLong before tax season, (when you begin a job) you completed a form W-4. This form indicates how much federal income tax your employer should withhold from each of your paychecks. It’s important to understand that the more allowances you claim, the less tax taken out per paycheck. While this will give you a bigger paycheck each month it will mean a smaller tax refund or even a bill at the end of the year. It’s important to balance your deductions properly to get it right. To do so, keep a few factors in mind as you calculate your allowances, such as:
• Claiming yourself, your spouse, and any qualifying children or dependents
• Taking the allowance for head of household
• Claiming more than $1500 for child/dependent care expenses
• Working multiple jobs
• Having a spouse who works
Claiming fewer allowances will reduce your monthly income, but it will boost your refund come tax time. So, you really just have to determine what is best for you. Then you can adjust your W-4 withholdings at any time if you find that too much or too little is being withheld. So when tax season rolls around it should remind you to reevaluate your W-4 withholdings.

Reconsider Your Filing Status

Another factor that affects your refund is your tax filing status. Your status determines:
• Standard deductions
• Filing requirements
• Credit eligibility
• Taxes owed or refund received
The three most common filing statuses are married filing jointly, married filing separately, and single head of household. Your filing status can heavily affect how much you receive on your return, so it’s important to consider which status is most beneficial to you.

Claim Earned Income Credit

The earned income tax credit (EITC) is designed for working families, individuals, people who are self-employed, and others with a moderate to low income. The credit decreases the amount of taxes you owe and may help you qualify for a refund. To qualify for the credit, you must meet all of the established requirements, including having a valid social security number, being a legal resident, having an income, not being a dependent, having a child, and being between the ages of 25 and 65. The EITC is a great opportunity to boost your refund that many people don’t take advantage of.

Schedule C and SE

If you’ve started a business or done any freelance work you will need to file a Schedule SE (Self-Employment). The bad news is that as a self-employed person you are on the hook for paying the full load for Social Security and Medicare Taxes. In 2015 and 2016 the Social Security and Medicare tax rates are as follows:

On earnings up to $118,500 Employee Self-Employed
Social Security Taxes 6.2% 12.4%
Medicare Taxes 1.45% 2.9%
Total 7.65% 15.3%

But the good news is that you are entitled to many more deductions than a wage earning individual. So the more deductions you can legitimately take the more you can reduce your taxes. So be sure to watch for every possible deduction. Some key deductions to look for are:

  1. Auto Expenses- If you use your car for business you can deduct some of your car expenses.
  2. Legal and Professional Fees including those for maintaining your books, preparing taxes, lawyers, etc.
  3. Expenses related to starting your business.
  4. Office Expenses (if they are in your home you can deduct a percentage of all your home expenses including electricity, mortgage, taxes, etc.) you can also deduct office supplies.
  5. Computers, Printers, Copiers and other equipment used in the business. (but you may have to apportion them if you also use them for personal use).
  6. Bad Debts related to the business.
  7. Business related Travel and Entertaining.
  8. Taxes (related to operating your business)
  9. Charitable Contributions (If your business is a partnership, a limited liability company, or an S corporation)
  10. Education Expenses related to improving your skills to run your business.
  11. Advertising

Business loan provider Loan Builder reminds you not to forget that interest on business loans is also deductible.

In his excellent book Lower Your Taxes Big Time former IRS Attorney Sandy Botkin recommends that everyone try to find a way to start a small business because of all the extra deductions available.

While most people don’t enjoy filing their taxes, it’s typically because they don’t get a very big return or they end up owing money. Do yourself a favor and use these tips to get the biggest return you can this year.

About Tim McMahon

Work by editor and author, Tim McMahon, has been featured in Bloomberg, CBS News, Wall Street Journal, Christian Science Monitor, Forbes, Washington Post, Drudge Report, The Atlantic, Business Insider, American Thinker, Lew Rockwell, Huffington Post, Rolling Stone, Oakland Press, Free Republic, Education World, Realty Trac, Reason, Coin News, and Council for Economic Education. Connect with Tim on Google+