Tax and License

Many of us begin to anticipate the approach of spring in March, but many of us also begin to fear the onset of tax season around the same time. You’re probably like millions of other people right now, rushing to get your taxes in before the April 15 deadline. Many of you may file your taxes electronically by taking advantage of your expert internet knowledge and the tools readily available online. While some people find success using online tax preparation tools, others stick to hiring CPAs and tax preparers for help because they doubt the accuracy of such programs.

There is nothing you can do to raise the amount of your tax refund beyond what is legally possible at this time; you will only receive what you are eligible for. Some people don’t realize it, but it is too late to start thinking about maximizing your tax deductions at this point. However, there is a limit to how much you may reduce your tax liability by taking advantage of deductions and credits. This highlights the critical need for tax planning in this situation.

Many people confuse tax preparation with tax planning, and most taxpayers only give planning a cursory glance while they are putting the finishing touches on their annual tax filings. There is nothing you can do, however, to reduce your tax bill at that point in time. To minimize your tax bill, you should be aware of the many tax planning opportunities that come up throughout the year.

Try to evaluate your present tax situation and seek ways to lower the amount of money you owe in taxes at the beginning of the year, possibly when you are preparing your taxes. You may want to make a list of all the things that are tax deductible for you, such as the many types of debt you have and how to get rid of them, the investments you own and how to get rid of them, your retirement and school savings plans, and the various expenses you incur. Some examples of tax planning include deciding whether to file as a single or married taxpayer, when to sell high-value assets, how much to give to charity, when to pay bills, and how much to withdraw from retirement accounts, among other choices.

You can avoid second-guessing and wondering whether there was a better way to handle each deal by considering the potential tax ramifications of each major financial transaction you make during the year.

Maximizing Your Refund: Smart Tax Preparation Strategies

Some examples of tax preparation are provided below that may increase your refund or help you avoid paying taxes altogether.

1. Mastering Paycheck Withholding

If you are an employee, raising the amount of tax deducted from your paycheck might reduce the amount of tax you owe at the end of the year. This shifts the emphasis from “how much do I need to pay?” to “how much will I get back as a refund?” The catch is that your paycheck deductions will gradually increase throughout the year, forcing you to readjust your spending habits. If you withhold too much from an employee’s paycheck, you risk giving the money to the government without any interest being added to it.

In order to know if you are withholding enough money from your paychecks, you must first ensure that all of your deductions are the same from one year to the next. Reduce your withholding if you received a higher refund than anticipated. However, if you end up owing more in taxes than you anticipated, you should increase your withholding accordingly.

2. Making the Most of Stock Losses for Your Financial Advantage

If you possess a stock that you’ve been keeping an eye on for years in the hopes that it will recover but have seen no evidence of doing so, you shouldn’t give up hope just yet. If you can reduce your tax liability, you can still profit from a stock that is losing value. Forget about the stock till the end of the year and cash out if you don’t think it will increase in value. Selling the stock at a loss helps balance out your capital gains for the year, and if you’re married and filing jointly, gives you an extra $3,000 to exclude from your taxable income.

However, there is a caveat to it. Avoiding wash sales is a good idea. You cannot sell lost stock and then buy it back within 30 days, either before or after the transaction. You are now allowed to keep the losses you’ve already incurred.

3. Maximizing Your Medical Deductions

If you expect to incur high medical costs over the given calendar year, you should be able to itemize your deduction by keeping track of your purchases and even medical miles driven. If you want to achieve this goal, you should create a strategy and be sure to save all of your receipts for the various medical expenses you will spend, such as the price of drugs and prescriptions, co-pays, and hospital bills. Make sure to tally up all of the miles driven to and from the hospital. You should factor in these medical deductions in addition to the premiums you’ve already paid for health insurance.