Tax Refund Tips Everyone Should Know, According To Money Experts
Tax Day may not be everyone's favorite "holiday" (especially if you're an accountant), but of course, filing your taxes is a necessary and important part of being employed. For some, there's the dreaded possibility that you might owe money to your state or the IRS, but for others, it's the time of year when they eagerly await their refund. And whether you file online or get the help of a professional, a few key tax refund tips could help your chances in joining the latter category this year — just ask the pros.
But even though Tax Day isn't until April 15 — which really marks the deadline for filing taxes — experts advise against procrastinating until the cutoff date. Lisa Greene Lewis, CPA and tax expert for TurboTax, says that this is how many errors are made. "One of the most common mistakes taxpayers make when rushing to meet the tax deadline is gathering incorrect Social Security numbers for their children and spouses, and even misspelling their own names," she says. "Incorrectly inputting information is easy to avoid if you take your time and don't wait until the last minute."
Ahead, three financial experts share their best tips for filing taxes. From getting organized, to claiming credits and deductions, to the best ways to spend your refund (or make a plan for paying in), this pro advice will help lower your stress level this tax season — and hopefully, get you your best refund ever.
First and foremost, "know what documents you need," says Shannon McLay, founder and CEO of Financial Gym, a financial coaching service. "The alphabet soup of tax forms boils down to documentation for your types of income you earned and tax-deductible expenses you spent."
McLay says that the basic checklist for a company employee should look like this:
- W-2 from employer
- 1099-INT from high-yield savings account(s) if you earned more than $100
- 1099-B or -S if you sold any stocks or other significant property
- 1098-E for the interest paid on your student loans
- 1095-A,B, C for proof and payment for health insurance
- 5498, -SA, QA, ESA showing contributions to tax-advantaged accounts like an IRA or HSA
- Documentation of other tax-deductible expenses: being a home owner, having children, charitable donations, or having a job with deductible expenses.
Avoid These Common Mistakes
McLay, who's made it her mission to empower women through their finances, unveils the most common mistakes she sees her hardworking female clients make:
Not reporting taxable income. "In general, our female freelancing clients tend to make the most mistakes around filing their tax returns, and it’s in a number of areas. Even if you haven’t received a 1099 from a company that paid you, it’s best to report the income, anyway."
Not tracking business expenses. "Many times women do not track all of their business-related expenses and understand their deductions, which could lead to higher taxes paid. Do your research and understand what type of expenses you are allowed to deduct. You can refer to the IRS website to see your options."
Not having justifiable deductions. "The most important thing to keep in mind is that whatever expense you choose to deduct, in the event you are ever audited, you want to be sure you’re able to provide a good justification for why you felt it was appropriate to deduct it."
Not filing quarterly taxes. "Many women who start businesses do not know about filing quarterly taxes, and if you have a profitable business and you haven’t paid taxes all year, then you will pay a penalty to the IRS."
Know What What Credits & Deductions You Qualify For
Looking for more ways you can deduct? Lewis outlines the categories where people often miss getting their full refund:
Claim all of your dependents. "Be sure to think outside the box on this one — if you provide more than half of your parents’ [or a relative's] support and their income is under $4,150 each, then you can claim them as dependents on your tax return, even if they don’t live with you.
"Providing over half of your boyfriend or girlfriend’s support? You may be able to claim them as a dependent, too, though non-relatives are required to have lived with you all year to be eligible. Under the new tax law, you can no longer get the dependent exemption which was $4,050 in tax year 2017, but you may be able to lower your taxes with the new credit of $500 for non-child dependents."
Deduct your tuition. "Education expenses can be tax deductible if they maintain or improve skills required in your employment. Even if you are not going for a degree or taking classes to improve your job skills, you may still be able to take a deduction for college classes. The Lifetime Learning Credit is worth 20 percent of all your tuition expenses, up to $2,000 in tax credits per tax return, for you, your spouse, or on behalf of your child who is claimed as a dependent."
Save for retirement. "The biggest mistake most of us make is not saving enough for retirement. Contribute all you can to your 401(k) plan or 403(b) plan at work. If you don’t have a retirement plan available to you, be sure to contribute $5,500 to an IRA (plus another $1,000 if you are 50 or older). You’ll save on your taxes now and benefit during your retirement years.
"You may also be able to make a 2018 contribution to your IRA up to the April 15 tax deadline and take a deduction for the contribution on your 2018 taxes. Just be sure to tell the plan administrator that your contribution is for 2018. This is a great tip to lower what you owe up until the tax deadline."
Don’t miss big credits. "There are a few credits that can really boost your tax refund, but many taxpayers who are eligible for the credits don’t claim them. The Earned Income Tax Credit is a huge refundable tax credit that can be worth up to $6,431 for a family with three or more kids, but the IRS reports only one out of five taxpayers who are eligible take it.
"The Saver’s Credit is also another little-known credit that eligible taxpayers miss and it can be worth up to $1,000 if you’re single and up to $2,000 married filing jointly. The Saver’s Credit is an additional boost you get just for investing in your retirement."
Start Preparing For Next Year
Of course, the best way to get your maximum refund is to keep track of receipts, documents, and expenditure all year long. "Once you have decided the expenses you are able to deduct, then make sure you’re tracking these expenses throughout the year," says McLay. "The easiest way to do this is to dedicate a specific checking account or credit card for all of your tax-deductible expenses. That way when tax time comes around, you can just export the statements/transactions from that one account and know exactly how much you spent. The alternative is to use a software or app for you to manually categorize and tag these expenses throughout the year."
Remember That Your Refund Isn't "Free Money"
"Despite popular opinion, getting a large tax refund isn’t very helpful because you could have been putting that money to work for you earlier in the year," reminds Ethan Bloch, CEO of Digit, a financial health tool. So instead of blowing it on a shopping spree, try to spend (or save) smartly. "[This year] consider putting a system in place where you’re withholding less and using that money to pay off high-interest debt throughout the year instead of giving the government an interest-free loan."