Refund season is in full swing. This is the time the majority of taxpayers are filing their taxes so they can get their tax refund. According to the IRS, about 75 percent of taxpayers received a tax refund close to $2,800 last tax season. But some of you may feel like your refund was a little low.
For taxpayers using tax software, you most likely got the most out of deductions and credits, since tax software reminds you of tax deductions and credits you may not have known exists.
Whether you received the tax refund you deserved last year or think you could have gotten back more, here are six tips to help you maximize your tax refund this year.
File early. Your W-2 should be in your mailbox soon, so you can go online and finish your taxes. The sooner you e-file with direct deposit the sooner you will receive your tax refund, allowing you to put that money to good use. Do you have some debt from the holidays? If you receive your tax refund soon you can pay down your debt earlier and eliminate some of the interest charges.
Don't take the standard deduction if you can itemize. The standard tax deduction ($6,300 for singles and $12,600 if you're married filing jointly) is a deduction set by the IRS that allows you to reduce your taxable income if you cannot take advantage of more tax deductions by itemizing. Although standard deductions will help lower your taxes, if you take a little time and gather up some of your receipts, you may find you can itemize your deductions to get a bigger tax refund. Some additional expenses such as charitable contributions, casualty losses, unreimbursed business expenses, job search expenses and the state and local sales tax deduction may push you over the standard deduction.
Related: The 10 strangest ways states tax you (or don't).
10 Strangest Ways That States Tax You (or Don't)
How to get the biggest tax refund this year
To preserve the uniqueness of their island paradise, Hawaii since 2004 has had an "Exceptional Tree" tax allowance. Landowners can deduct up to $3,000 from their income for expenses such as pruning and fertilization for any tree designated as rare, big, old or a combination thereof. That's per tree. Top-bracket earners taxed at the state's highest rate (11 percent) would save $330 via the deduction. The work must be done by a certified arborist, and the deduction can be claimed only every third year. Hawaii has had a list of "Exceptional Trees" since 1975, and there are now estimated to be more than a thousand thus designated.
Maine legislators tax anyone who deals in their official state fruit-blueberries, at the rate of 1.5 cents per pound. The resulting revenues-more than $1.6 million to state coffers in the fiscal year that ended in June 2013-are used to promote the crop and agricultural research.
The state also taxes harvesters and processors of hard-shell clams (known in the state as mahogany quahogs) at $1.25 a bushel, but state revenues for that are much lower.
Alabama is the last in the union to tax a deck of cards as if it were a "vice," like alcohol and tobacco. Taxing decks of cards, associated with gambling, was once fairly common, but most states have since set up separate control boards to regulate liquor and tobacco, and have let the cards slide.
But in Alabama, you'll still pay a 10 cent sales tax on any pack of cards you purchase. Retailers also have to pay $2 to the state each year for the privilege of selling playing cards.
Virginia levies a 50-cent excise tax on every lamb or sheep sold in the state. Both the Maine and Virginia taxes are examples of checkoff programs that collect taxes from an industry to fund promotional campaigns for the products. National commodity checkoff programs, authorized by the U.S. Department of Agriculture, have brought you campaigns such as "Beef: It's What's for Dinner" and "Got Milk?" But the Virginia program is extremely modest by comparison, having collected only $9,000 in fiscal year 2013. The funds go to the Virginia Sheep Industry Board, which spends them largely on predator control.
In 2013, in part to meet federal pollution-control mandates, Maryland legislators enacted fees on property owners in Baltimore and nine other Maryland counties, aimed at curbing storm water runoff. The fees were meant to fund programs to improve the water quality of the Chesapeake Bay, the largest marine estuary in the U.S. Sounds simple enough, but the way Maryland legislators wrote the law has led to an angry backlash in some corners against this so-called “rain tax.” One way localities calculate the tax is by measuring how much of a landowner’s tract is "impervious" to precipitation seeping into the ground. So the more you've developed it with buildings, driveways, tennis courts and the like, the less it will absorb and the more you pay. That's how the tax is being implemented (through aerial and satellite photos) in Montgomery County, a heavily developed suburb of Washington, and many landowners are up in arms. New Maryland Gov. Larry Hogan, a Republican, campaigned against this tax in his winning 2014 campaign and has introduced legislation to repeal it, though it’s not clear that will fly with Democratic state legislators. Money still needs to be raised to satisfy the federal pollution mandates, but the methods may change.
Kansas is among a bevy of jurisdictions that allows sale of lower-alcohol beer (the term of art is “cereal malt beverage”) in convenience and grocery stores. But Kansas also taxes “3.2” beer differently -- and there lies the rub. At a liquor store, all products, including, say, a conventional six-pack of Budweiser (with 5 percent alcohol by volume), are taxed at a special rate of 8 percent. At the convenience store down the street, however, ordinary sales tax is levied on the lower-alcohol, cereal malt beverage bottle of Bud. That often ends up being more than the 8 percent alcohol tax. In Pomona, Kansas, for example, the effective rate on the weaker beer would be 9.7 percent. Go figure.
When it comes to taxation, the rule is generally the stronger the booze, the higher the tax (that's why Kansas's beer tax scheme is an anomaly). California follows that curve, but at 100 proof, you better be ready to pay through the nose. Distilled spirits are taxed at $3.30 a gallon if below 100 proof, or 50 percent alcohol. Go over that, like with Bacardi 151, and the tax doubles to $6.60. Maryland also notes the 100 proof point, but it only adds 1.5 cents per proof, per gallon to the relatively modest liquor tax of $1.50 per gallon, taking the Bacardi 151 to $2.27 per gallon.
Entertainment venues pay a business tax to Nevada ranging from 5 percent to 10 percent on admissions fees (and food, drink and merchandise sales) whenever there’s live entertainment going on. There are exemptions, however, including this one, for businesses that provide "instrumental or vocal music, which may or may not be supplemented with commentary by the musicians, in a restaurant, lounge or similar area if such music does not routinely rise to the volume that interferes with casual conversation and if such music would not generally cause patrons to watch as well as listen." So your piano player can play “Feelings” softly and even crack a few jokes, tax-free, for your business. Just make sure they're not funny enough to attract attention.
Want to own a plush or fuel-thirsty ride? That’ll cost you extra in New Jersey. Cars that cost $45,000 or more or have a combined EPA fuel-mileage average of 19 or below pay an additional 0.4 percent on top of New Jersey’s 7 percent sales tax.
In New Mexico, making it to 100 years has a payoff beyond the chance that Willard Scott will wish you a happy birthday: You don’t have to pay state income tax anymore. If you’ve been physically present in the state for at least six months and a resident of the state on the last day of the year, and you’re not someone’s dependent, you’re eligible. You’ll still need to file, and there are some complications if you’re married and your spouse doesn’t qualify.
Claim your friend or relative you've been supporting. If you have been supporting your friend, significant other or relative, you may be able to get a dependent exemption of $4,000, which is deducted from your income. There are some rules regarding non-relatives and relatives, but the deduction is legitimate if your non-relative has lived with you the entire year (relatives don't need to live with you), doesn't provide more than half of his or her own support and doesn't earn over $4,000 in taxable income.
Take above-the-line deductions if eligible. Above-the-line tax deductions allow you reduce your taxable income without itemizing. Examples include if you paid for your students' school supplies, went back to school to land that promotion, paid alimony, pay self-employment tax, paid student loan interest, contribute to your IRA or had unreimbursed moving expenses. The reduction to your taxable income may also help you get a bigger Advanced Premium Tax Credit if you received assistance to help pay for insurance in the health insurance marketplace.
Don't forget about refundable tax credits. A tax credit is a dollar-for-dollar reduction of the tax you owe, and a refundable tax credit will allow you a credit beyond your tax liability. The Earned Income Tax Credit is an often missed tax credit worth up to $6,242 for a family with three our more children. One out of five taxpayers who are eligible for it fail to claim it, according to the IRS. Some taxpayers miss this valuable credit because they are newly qualified due to changes in their income. or they chose not file their taxes if their income is below the IRS income filing threshold ($10,300 if you're single or $20,600 if you're married filing jointly).
Contribute to your retirement to get multiple benefits. You have until the filing deadline (April 18 this year) to contribute to an IRA and reap the benefits of a tax deduction of up to $5,500 ($6,500 if you are 50 or older). In addition to this deduction, you may qualify for the saver's credit. This is the only time the IRS allows you to double dip. The IRS gives you an additional credit of up to $1,000 ($2,000 for married filing jointly) if you contribute to your retirement.
These tax tips will help you maximize your tax refund and allow you to spend it wisely whether you are paying down debt, saving it for a rainy day or building up your nest egg.
Generally, when you give money to a charity, you can use the amount of that donation as an itemized deduction on your tax return. However, not all charities qualify as tax-deductible organizations. While there are many types of charities, they must all meet certain criteria to be classified by the IRS as tax-deductible organizations. There are legitimate tax-deductible organizations in many popular categories, such as those listed below.
Married couples have the option to file jointly or separately on their federal income tax returns. The IRS strongly encourages most couples to file joint tax returns by extending several tax breaks to those who file together. In the vast majority of cases, it's best for married couples to file jointly, but there may be a few instances when it's better to submit separate returns.