Well, it’s everyone’s favorite time of the years again, tax season! Being honest and completely transparent, I actually LOVE tax season. What is better than getting a full snapshot of how you did financially last year? Burn this into your memory: Tax credits and deductions should be your best friend when it comes time to file your taxes.
Prepare your Own Taxes
Since graduating high school in 2008 I have always filed my own taxes. I love being able to put my business degree to work. Working with numbers is actually very fun for me…..NERD! We have used TurboTax each and every year and they are amazing! Their software is designed to help first timers all the way through savvy tax vets. TurboTax software algorithms help not only find all tax credits and deductions but apply them to get you your biggest refund.
If you’re nervous about it don’t stress! You can set up an account and prepare your entire tax return without having to pay upfront. You only pay once you have completed your return, and all appropriate information is inputted. This allows you to see exactly how much you owe or how big your refund is without paying upfront. Another huge bonus is they provide federal and state tax prep for most states.
Another huge bonus is they provide federal and state tax returns for most states. Check out our link below for more information on preparing your own taxes this year with TurboTax.
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Knowledge is Power
It’s absurd so many people don’t take advantage of all tax credits and deductions that they can claim.
“Tax credits can significantly lower your tax liability,” said Bob Meighan, a CPA and Vice President of customer advocacy for TurboTax. “Each dollar of a tax credit reduces your tax by a dollar.”
Credits are more impactful than deductions, which reduce your taxable income — typically, a dollar of a deduction reduces your tax by only about 25 percent.
A quick example, if you owe $600 in taxes and have a $400 tax credit, you would only have to pay $200. Tax credits can be significantly different from one to another. TurboTax does a great job asking you simple questions to see if a credit would apply to you, and also applying them automatically giving you the best outcome possible.
Tax Credits & Deductions for Individuals from (IRS.gov)
Credits for Individuals
Subtract tax credits from the amount of tax you owe. There are two types of tax credits:
- A nonrefundable tax credit means you get a refund only up to the amount you owe for taxes.
- A refundable tax credit means you get a refund, even if it is more than what you owe.
Family & Dependents
- Earned Income Tax Credit
- Child and Dependent Care Credit
- Adoption Credit
- Child Tax Credit
- Credit for the Elderly or Disabled
Income and Savings
- Earned Income Tax Credit
- Saver’s Credit
- Foreign Tax Credit
- Excess Social Security and RRTA Tax Withheld
- Credit for Tax on Undistributed Capital Gain
- Nonrefundable Credit for Prior Year Minimum Tax
- Credit to Holders of Tax Credit Bonds
- Mortgage Interest Credit
- Residential Energy Efficient Property Credit
- Nonbusiness Energy Property Credit
- Low-Income Housing Credit (for Owners)
Deductions for Individuals
Subtract tax deductions from your income before you calculate the amount of tax you owe.
- Deductible Business Expenses
- Standard Mileage Rates
- Home Office
- Business Use of Car
- Business Travel Expenses
- Bad Debt
- Business Entertainment Expense
- Depreciation and Amortization
- Student Loan Interest
- Tuition and Fees Deduction
- Work-Related Educational Expenses
- Teacher’s Educational Expenses
- Standard Deduction
- Deductible Taxes
- Property Tax
- Real Estate Tax
- Sales Tax
- Charitable Contributions
- Gambling Loss
- Miscellaneous Expenses
- Interest Expense
- Home Mortgage Interest
- Union/Club Expenses
- Moving Expenses
The Break Even Goal
Tax season can be very stressful, but it does not have to be. Using Turbotax and knowing a little bit about which tax credits and deductions to watch out for makes it easy!
Every year Brittany and I try to break even or get as close to that as possible. Meaning, we try not to owe money to the government and not receive a refund. This is for a few reasons.
First, we don’t want to have to pay a huge lump sum of back to the government. I have heard people having to owe the government thousands upon thousands of dollars and that does not sound like fun. Unless you are a super wiz investor that can make 10% + on that money throughout the year you’re better off paying taxes over time, so it doesn’t hurt so much all at once.
Second, we don’t want a HUGE refund check. Yes, you heard that correct we DO NOT want a huge refund check at the end of the year. Some people might be thinking “what is wrong with you” or “you don’t want free money”? Let me explain.
We have received a HUGE tax refund before, we’re talking thousands of dollars. We were actually really excited at the time, woohoo free money! Who hasn’t been young and naive before? Receiving a huge refund check from the government means: you loaned them your money throughout the year at no interest. It is your money, you get it taken out of your paycheck. You’re much better off getting your money in your paycheck and using it throughout the year, hell even invest it. Anyone who gets excited about a huge refund check is wrong. You screwed up! You gave the government more money than you should have and now they are giving back your change.
It’s all about finding the balance. Breaking even should be your ultimate goal. You can change your withholdings throughout the year to help make this happen. Play around with them and find the sweet spot. This was our best year by far as far as breaking even, we are pretty excited about it.
Win the tax season game! Educate yourself on what tax credits and deductions are out there. Always be honest when filing your taxes, it’s not worth the hassle of getting audited. If you do not feel comfortable preparing your own taxes then seek out an expert. Good luck this year, hopefully, you break even!
Do you prepare your own taxes or have a professional prepare them for you?
Which credits and deductions can you claim this year?
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