While we cannot escape filing our income tax returns as much as we would like to, taxpayers will agree that a victory for the 2023 tax season means paying the IRS as little as possible or receiving the biggest tax refund imaginable. The reality is that Americans do not enjoy filing their returns. Most would bypass it altogether if there were no penalties. Who can blame them? The cost of living expenses is staggering and inflation keeps soaring higher than we have experienced before.
Filing your income tax returns can be challenging, particularly when the number of credits and deductions keep decreasing. Many taxpayers have a negative attitude toward filing their returns and see it as a mandatory task with sometimes results in unfavorable monetary consequences. Although justified, individuals and businesses will take the same steps as they always have year after year so they can complete their income tax returns to meet the 2023 tax season deadline.
Keep in mind that your goal should be to maximize every item in your favor. In other words, seek out the applicable credits and deductions that we are entitled to according to IRS. By just taking an extra few minutes to review every detail of your returns and double-check your figures, it can make the difference between owing barely anything at all or getting a larger refund than you anticipated.
Filing Status Does Matter
Most individuals do not realize that filing status does affect the amount of taxes you pay the IRS. Typically, taxpayers just assume that they must file a particular filing status because that is routinely what they have been doing annually. Most likely, individuals aren’t aware that they could change to a different filing status.
For instance, consider that your annual salary is $42,000, and the amount of taxes you will pay is based on the filing status to which you are entitled to. While you may think that is not a big deal, what you ultimately end up owing to the IRS translates into a variation of paying up to either 10 percent or 30 percent. If you think about it, that’s a big difference.
Particularly, choosing to file as a married filing joint status on your 2023 tax income returns will most likely affect the size of your tax refund check. Research has indicated that 96% of married couples will automatically choose to file jointly on their returns annually. While it seems to be the most logical choice, it unfortunately is not the best choice.
Many taxpayers do not realize that one major drawback of filing jointly as a married couple versus filing separate returns is that you may not qualify for certain credits and deductions. Explore your options and determine the best strategy for you to maximize your ability to receive a tax refund. Furthermore, it is important to understand that both partners must either itemize their deductions or choose to elect the standard deduction.
In addition, unmarried taxpayers, who satisfy the requirements can claim a qualifying deduction and can reduce their overall tax liability by filing as the Head of Household. The ability to claim the Head of Household status can be beneficial in decreasing your tax obligation. Individuals providing care for their elderly parents lack the knowledge that they qualify to make this claim on their income tax returns. You may qualify to file as the Head of Household status regardless of whether your parents live with you in your residence or not. The only requirement is that you are responsible for greater than 50% of their financial support.
Being aware of the difference in filing status is indeed valuable and can significantly impact your tax obligations to the IRS. Of course, breaking even or owing a minimal amount to the IRS is the ideal situation but getting a decent size refund check is icing on the cake.
Commonly Overlooked Tax Deductions
When filing your 2023 income tax returns, pay attention to these deductions that you may have simply not been aware of in the past. Some of these deductions are typically neglected by taxpayers. However, applying these deductions this 2023 tax season can tremendously affect your tax refund favorably contingent on the type of deductions you meet the criteria for.
State sales tax: This is one deduction you want to take advantage of. Refer to the IRS’s calculator to determine exactly how much of your state and local sales taxes you can actually write off.
Reinvested dividends: You may wonder how this could be considered a deduction but it can help make a dent in lowering your overall 2023 tax obligation. The silver lining is that you may be able to reduce your taxable capital gain when you sell shares of your mutual funds by simply including reinvested dividends in your cost basis. By applying this deduction, dividends from your mutual fund will be automatically reinvested.
Out-of-pocket charitable contributions: This is one deduction that individuals are not quite sure of, especially since we believe that donating to those in need should be considered an act of kindness. Keep track of your donations to charities and any expenses related to a good deed for the less fortunate. Unfortunately, keep in mind that not all contributions will qualify for a deduction.
Student loan interest: This is often a confusing one. You are eligible to take a tax deduction for the interest paid on student loans taken out by yourself, your spouse, or your dependent. In addition, this benefit carries over to all loans that were intended to pay for higher education expenses. The maximum deduction amount is $2,500 per year.
Child and dependent care: Many taxpayers do not realize the significance of this deduction. This deduction is considered a tax break geared specifically for working individuals to assist with counterbalancing the costs related to providing care for a child or dependent with disabilities. The objective of this deduction is to help offset the expenses you spent on care while you worked to provide for your family. Individuals that meet eligibility requirements can decrease their 2023 tax obligation by a substantial amount of money.
IRA and HSA Contributions Are Beneficial
Many individuals seem to overlook the benefits that traditional individual retirement accounts or IRAs provide. One great feature of IRAs is that they are tax-deferred. Individuals are exempt from having to pay tax on any interest or other gains the account accrued until they withdraw the money. Most importantly, the contributions that you make to your IRA allow you a tax deduction every year.
Timing is Everything
Be mindful of any qualifying payments or events throughout the year that will help with maximizing your tax refund and lowering your taxable income.
Tax Education is Key
Be proactive and educate yourself by researching tax rules and annual updates. It will benefit you in reducing your 2023 tax liability and inevitably maximizing your tax refund.
Consult a Professional Tax Expert
If you need assistance with filing your 2023 income tax returns, seek professional advice from a tax expert. Start Fresh Tax Relief understands that completing your tax returns can be overwhelming and even complicated at times. Let us take the burden off your shoulders and assist you with obtaining the highest tax refund possible.