25 Jan 4 Questions To Ask For A Bigger Refund
By Mark T. Berry
Nearly everyone has to pay taxes, so why are they so hard to understand. Because the tax code is so complicated, it’s normal to feel like you might be doing it wrong.
We’re here to help.
Here are some common questions that might come up when we sit down to look at your tax returns together.
- Did I have the right amount of taxes taken out of my pay?
When you’re hired by a new employer, you’re usually asked to fill out a W-4 form. This tells the payroll department how much money to hold back from each paycheck for taxes. If you declare more exemptions (also known as allowances,) you will have less money taken out of your paycheck. If you declare fewer exemptions, more money will be withheld.
Going forward, you can use the IRS withholding calculator to figure out how many exemptions to declare. But for now, we can help you determine whether you had enough withheld to cover your most recent tax bill.
If you didn’t withhold enough, you may owe some taxes on April 15th. If you withheld too much, you may be looking at a nice tax refund.
2. How can I reduce the amount of taxes I owe?
The best way to pay less in taxes is to reduce your taxable income. That means you need to find ways to pay for some of your expenses with money that hasn’t been taxed yet.
Here are some expenses that can be paid for with pre-tax money:
- Health insurance for yourself, your spouse and your dependents. If you pay premiums for your health insurance through an employer, it’s typically deducted from your paychecks pre-tax. That means your taxable income is reduced by that amount, and your taxes will be lower.
- Other medical expenses. Ask your employer if they offer a flexible spending account. This allows you to set aside money each year for medical expenses like doctor’s office co-pays, dental bills, eyeglasses and prescription drugs.
- Dependent care. Again, this is most easily done through a flexible spending account. There are also some tax credits that help Americans pay for childcare or adult day care services.
- Retirement contributions. Money that you put into a 401k, 403b or Traditional IRA isn’t taxed in the year you make the deposit. You’ll pay taxes on that money when you withdraw it in retirement, but for now, it will reduce your taxable income.
What’s the best way to track my deductible expenses throughout the year?
This really depends on you. Do you prefer to use a smartphone app, a spreadsheet on your computer, an online service like Mint or You Need a Budget, or just an envelope to save receipts? Those are all viable options.
Depending on your situation, you may want to save the following documentation:
- Receipts for payments to your daycare provider
- Utility bills, rent checks and other housing costs if you have a home office
- Receipts for medical co-pays, dental bills and pharmacy purchases
- Donations to a qualifying charity, including donations of clothing or other goods
- Mileage when you use your car for work
- Union dues and other unreimbursed employee expenses
I think I made a mistake last year. Should I correct it?
The short answer is yes, you should do your best to make sure all the information you submit to the IRS is 100% correct.
If you underpaid: It’s a good idea to correct it right away. You could owe penalties and interest, and the longer you wait, the more they’ll pile up. You may be able to set up a payment plan if you can’t pay it all at once.
If you overpaid: It’s not as crucial to correct the error in this case, unless you stand to get a significant refund from the government. We can give you an estimate of how much it will cost to have us file an amended tax return from a previous year. Then you can determine if you’re likely to come out ahead.
Keep in mind that you only have three years to file an amended return and get a refund. After that, any money owed to you stays in Uncle Sam’s pocket.