We’re a little over halfway through March, which means Tax Day is fast approaching. You may have already filed your return and are anxiously awaiting the direct deposit or have arranged your method of paying any outstanding dues. If you haven’t started filing—don’t wait! In the case of owing any money to the IRS, the due date for payment is still April 15th even if you file for an extension on the deadline.
Thankfully, there are a few ways to put a little more cha-ching in your wallet this tax season. You may even find that you’ve been neglecting some tax breaks and losing money on past tax returns as well. In this blog, we’ll dive into a few tips and tricks to save more money on your tax return while filing, and how to continue to save even after you file. In just six steps, you’ll be on the road to better understanding your tax return and how to make the most out of it.
3 Steps to Pre-Refund Tax Savings
1. Maximize Your Deductions
You may look at the list of deductions and think none of them could possibly amount to enough to make an impact on your return. However, each deduction makes an impact and every bit combined can add up to big results. Check out the full list of deductions to really get the most out of your return.
Things like student loan interest, state sales tax, and dependent care are all valuable deductions that you may be eligible for. Combined, these deductions can add up to the refund of your dreams. Keep track of all potential deductions and be sure to stay organized and keep all files in order to make sorting through receipts and notes easier come tax time. Lesser-known deductions include in-kind donations and any money or miles used to do charity work. You may think these sound like they wouldn’t make a difference, but you never really know just how much each small thing can add up to. It’s a far safer bet to take advantage of your deductions than lose out on hard-earned cash by ignoring them.
2. Contribute to the IRA and HSA
Contributing to your Individual Retirement Account (IRA) and Health Savings Account (HSA) can vastly increase your return at the end of the year. Plus, contributing to your retirement fund is an investment your future self will be undoubtedly grateful for. When it comes to your refund, today’s IRAs provide more tax benefits and greater earnings than in previous years. You can also choose from taking advantage of yearly tax deductions now or saving your tax breaks for future withdrawals.
If you are eligible for a Health Savings Account, making contributions to it will help you pay medical expenses using the deposited funds. Not only that—you’ll be able to deduct these payments from your taxable income. Keep in mind that you can only contribute up to the amount dictated by HSA contribution limits and all contributions must be made before tax day in order to count for the previous year.
3. Take Advantage of Tax Credits
Tax credits are like the real-money equivalent to deductions. Instead of deducting from your taxable income, tax credits are subtracted from your tax liability. This means the tax you owe will be reduced by the monetary value of your tax credits. Common credits are Earned Income Tax, Residential Energy Efficient Property, and Health Coverage Tax Credit. Be sure to check out the IRS-provided list of credits that you may be eligible to get your maximum refund amount. As with deductions, even the smallest credit is still a monetary offset of the taxes you may owe. Taking advantage of them is a one-way ticket to even more savings and a potentially bigger return.
3 Steps to Post-Refund Tax Savings
1. If You Owe, Pay It off Now
If you didn’t know it already, any outstanding tax dues will rack up huge amounts of interest while you figure out a way to afford them. If you can, pay off the dues now to ensure no penalties or fines are being added to your account. As we mentioned above, even if you file for an extension on filing, you still have to pay the IRS on or before April 15th to avoid fees and penalties. Aside from fees and potential jail time, avoiding tax payments can also impact your credit. Though it won’t immediately put a dent in your score, failing to pay your taxes in a timely manner will eventually catch up to you. Having a plan in mind on how to handle your finances in these situations is by far a much better idea.
2. Take Out a Tax Loan
Rather than taking out a big chunk of out of your savings, finding a sound and secure way to pay off your tax debt is a much better plan. Though you can apply for a payment plan through the IRS, taking out a tax loan is often your best bet to stay on top of debt while earning a few bonus points. Interest rates are also much lower and repayment periods can be a bit more flexible than government-provided options.
Just like any other type of loan, you can apply through various online and in-person lenders or credit unions. Upon approval, you can then use it to pay off any outstanding balances to the IRS. Tax loans don’t just provide you with a reason to dance—they also help bump up your credit score over time as you make payments towards the balance. As long as your payments get made on time, a tax loan is the second-best thing to free money!
3. Build Your Rainy Day Fund
Debatably the trickiest part of filing your tax return is deciding how to use it. If you got back a decent sum of money from the IRS, chances are you’re racking your brain on next steps with that lump of cold hard cash. Instead of spending frivolously on things you may not even want or need in the future, consider using it to start an emergency or rainy day fund. Opening a second savings account will allow you to build interest on top of the principal, earning you even more money than you started with. Better yet, opening a CD account will yield an even higher interest rate. Though you may not be able to touch it for a few months, the reward is well worth the wait! Let’s be honest, it’s safer there anyways.
Haven’t started your tax return yet? Now’s a better time than ever! Common Trust Federal Credit Union has teamed up with TurboTax to help you save up to $15 on federal tax products. Moreover, our team is highly knowledgeable and here to help you with every step of your application.
Tax return not exactly what you’d anticipated? With rates as low as 9.99%, paying your taxes has never been easier than with our ongoing tax loan promotion. To learn a little more about repayment options and interest rates, give us a ring or reach out via email today!