The IRS is officially open for business and is accepting 2016 tax returns, meaning it's time to file your return and get your tax refund. According to the IRS, about 75 percent of taxpayers received a tax refund close to $2,800 last tax season.
If you use TurboTax, you'll get the tax deductions and credits you're eligible for since the software reminds you of tax deductions and credits you may not have known exist. 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. By now, you should have received your W-2 from your employer or your Form 1099-Misc if you were self-employed in 2016. Once you have all your tax forms together, go online and get your taxes done! The sooner you e-file with direct deposit, the sooner you will receive your tax refund. What you do with your tax refund is up to you, but having some extra cash on hand is a good opportunity to pay down any debt and eliminate interest charges.
Itemize your deductions if you can. The standard tax deduction 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. While the standard deduction will help lower your taxes – $6,300 if you're single; $12,600 if you're married filing jointly – if you take a little time to gather your receipts, you may find that you can get a bigger refund by itemizing your deductions.
Some common expenses that you can itemize on your tax return include: charitable contributions, casualty losses, unreimbursed business expenses, job search expenses, state and local sales tax deductions, mortgage interest, and unreimbursed medical expenses in certain situations. TurboTax will ask you simple questions about you and give you the tax deductions and credits you are eligible for based on your entries. You also don't need to know whether to take the standard deduction or claim itemized deductions. TurboTax will also determine whether you are eligible to itemize or take the standard deduction and give you the option that gets you a bigger tax refund based on your entries.
Contribute to your retirement account. You have until the filing deadline (this year it's April 18) to contribute to an IRA and reap the benefits of a tax deduction of up to $5,500 ($6,500 if you're 50 or older) for tax year 2016. In addition to this deduction, you may qualify for the Saver's Credit. This is the only time the IRS lets you double dip, giving you an additional credit of up to $1,000 ($2,000 for married filing jointly) if you contribute to your retirement.
Get a deduction for the friend or relative you've been supporting. If you've been supporting your friend, significant other or relative, you may be able to get a dependent exemption of $4,050, which is deducted from your income. Now there are some rules, but the deduction is legitimate if your non-relative has lived with you the entire year (relatives don't need to live with you), you provide more than half of his or her support and they didn't earn more than $4,050 in taxable income.
Take advantage of above-the-line deductions, if eligible. Above-the-line deductions are great because they allow you to reduce your taxable income without itemizing. Common examples include if you are a teacher and paid for your students' school supplies, went back to school to get that promotion, paid alimony, pay self-employment tax, paid student loan interest, contribute to your IRA or had unreimbursed moving expenses.
Don't forget tax credits. Tax credits are even better than tax deductions because they are a dollar-for-dollar reduction of the tax you owe, and a refundable tax credit will allow you a credit beyond your tax liability. Such credits include earned income credit, child and dependent care credit, education credits, retirement saver's credit, child tax credit or residential energy credits.