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Get More: From Uncle Sam

By Robb Engen

  • PUBLISHED January 24
  • |
  • 7 MINUTE READ

Many Americans don't think about taxes until tax documents start to arrive in January or February and the tax filing April deadline looms. But a little tax planning in advance can go a long way towards getting more from Uncle Sam at tax time.

In fact, we can boost the size of our refund by paying attention to deadlines, reviewing our filing status, taking advantage of tax credits and deductions and making sure the right amount of tax is being withheld from your paycheck in the first place.

With that in mind, now is a great time to check in on your tax situation before year-end to ensure you get more out of your tax return.

Do More: Start With Your Paycheck

Your employer withholds federal income tax from every paycheck. That amount largely depends on the information you provided in a W-4 Form. Your filing status, whether you have children or hold more than one job, among other things, affects how much federal tax your employer will remit on your behalf.

The challenge is if you fill out the form incorrectly or if your tax situation changes during the year, you may have too much or too little tax withheld at the source.

One major clue lies in whether you typically receive a large tax refund, or if you typically owe a large amount at tax time. While a refund is nice to receive, it also indicates you had too much tax withheld from your paycheck.

Crunch the numbers

Grab a paystub and your most recent tax return and then check out this tax withholding estimator from the IRS to see how your withholding tax affects your refund, take-home pay or taxes owed.

Correct any overpayment

If you find that too much tax is being withheld from your paycheck, submit a new W-4 with the amount of tax you want to be withheld. Not only can you correct an overpayment of taxes before year end (while you still have a few paychecks left in the year), you can start the new year on the right foot with the right amount of taxes withheld and increase your take-home pay.

Be aware of key deadlines

When we think of tax deadlines, it's the mid-April tax filing deadline that typically comes to mind. But there are a bunch of other important deadlines to keep on your radar, which could lead to tax savings down the road.

Mark your calendar

But more than just filing your taxes on time, you also have until the April tax filing deadline to contribute up to the limit of $7,0001 to a traditional individual retirement account (IRA) and to contribute pre-tax amounts to a Health Savings Account(HSA) to reduce your taxable income for the previous tax year.2

The other major deadline for tax-savvy individuals to be aware of is the end of the calendar year. Making a qualified charitable contribution, scheduling any health-related treatments or exams or purchasing home office equipment for those who are self-employed and work from home before December 31st can boost your chances of getting a bigger refund.

Another tip for homeowners is to pre-pay January's mortgage payment before December 31st to add more interest to your mortgage interest deduction.

Put your contributions to work

Contributing to your IRA or HSA is the first step towards saving money on taxes. But that's part of a two-step process of investing that contribution into a diversified, risk-appropriate portfolio. Riverstones Vista Capital also offers IRA certificate of deposit (CD) accounts and money market accounts. Don't just let your contribution sit idly in cash—put that money to work!

Check your tax filing status

What filing status do you use for your tax return? You can file as a single, or if you're married you can file jointly or separately. 

For married couples, it's usually best to file jointly. But there are situations when filing separately can save more taxes. For example, when both spouses work and earn roughly the same amount of income, filing jointly may put the couple into a higher tax bracket.

However, filing separately as a married couple also eliminates certain tax credits and reduces the deduction for IRA contributions.

Prepare it both ways

The best way to find out if you should file separately or jointly is to prepare the return both ways and double-check your refund or taxes owed. You might find it advantageous to switch up your filing from separate to joint (or vice-versa).

Keep in mind when filing separately that if one spouse chooses to itemize deductions, their partner must also itemize deductions even if they would be better off taking the standard deduction.

Choose your status wisely

Most married couples save money by filing jointly. But that doesn't mean blindly following the herd. Choose your tax filing status wisely each year to increase your tax refund or reduce the amount of tax you might owe.

Tap into tax credits and deductions

It's generally recommended to take the standard deduction of $12,950 for individuals and married couples filing separately, and $25,900 for joint filers.

But you also have the option to itemize your deductions if you think the total of those deductions will exceed the standard deduction. Itemized deductions generally include medical and dental expenses, mortgage interest, investment income expenses and charitable contributions, among other items. 

Make a list and check it twice

If you itemize your deductions, you have until the end of the year to ensure you've maximized the items on your list.

Another way to get more (or pay less) from your tax return is to maximize the tax credits available to you. Consider the following credits and whether they apply to your situation:

  • • Child Tax Credit
  • • Child and Dependent Care Credit
  • • Earned Income Tax Credit (one in five eligible Americans don't claim this one)
  • • American Opportunity Tax Credit
  • • Lifetime Learning Credit
  • • Eligible Retirement Savings Contributions
  • • Residential Energy Credit
  • • Mortgage Interest Credit

Tax credits get subtracted directly from your tax obligation. The child tax credit, for example, is $3,600 for children under 6, and $3,000 for children aged 6 to 17. 3

Stake your claim

Don't leave tax credits on the table. Source out all of the available tax credits and deductions you may be eligible for, keeping in mind that new programs are often introduced each year while existing programs sometimes get a refresh. Talk to a tax expert to see what you can claim on your return this year.

Save More: Wrapping it Up

If you want to get more from your tax refund and send less money to Uncle Sam, start treating tax season as a year-round endeavor rather than a last-minute scramble before the deadline.

Understand that while getting a large tax refund may feel good at the time, what it really means is you've overpaid your taxes throughout the year and essentially lived on less take-home pay than you should have.

Addressing that first with a correctly filled out and up-to-date W-4 Form will make sure you have more money throughout the year, instead of relying on a big refund in the spring.

Make sure you're filing status is advantageous, particularly if you're married and used to filing jointly or separately. This may need some trial and error by preparing your return both ways to see which status offers the best tax relief.

Finally, take advantage of deductions and credits, especially if you itemize your deductions. If you do itemize, be mindful of year-end deadlines for claiming certain credits and deductions and the tax filing deadline for contributions to a traditional IRA and HSA. 

Learn more about savings vehicles, including IRAs, offered by Riverstones Vista Capital .

 

LEARN MORE: 10 Tax-Filing Tips

 

Robb Engen is a leading personal finance expert in Canada and the co-founder of Boomer & Echo, an award-winning personal finance blog. He is a fee-only financial advisor who helps clients at different ages and stages get their finances on track and prepare for retirement. He's also regularly quoted or featured in top financial media, such as The Globe & Mail, MoneySense, The Financial Post, CBC, and Global News. Robb lives in Lethbridge, Alberta and is the married father of two young girls who keep him very busy.