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If you do use a paid tax preparation service, you can keep your cost down by declining any refund-anticipation-loan products. E-Filing and direct depositing your refund can reduce your waiting time and avoid these cost services. Refund-anticipation-loans have high fees, and not using a RAL can save you an additional $100.
Some companies try to entice you to apply for these early refund loans by not even waiting for your W-2 forms, they only ask for a pay stub. By waiting, you could use that extra money you did not spend on the refund-anticipation-loan to contribute to savings or pay down debt.
Pay only what you must. In order to maximize your tax refund, work to reduce your income subject to taxes by taking advantage of tax deductions and credits. Deductions lower your taxable income, and credits lower your taxes. Tax deductions can include interest expenses on student loans, medical expenses, and contributions to qualified retirement plans. If you can itemize certain expenses, then you may be able to deduct mortgage interest paid, taxes paid, charitable gifts, and more.
Regardless of whether you utilize a standard or itemized deduction, everyone can take advantage of tax credits. Like deductions, credits can help you receive a larger refund. The Earned Income Tax is a tax credit for lower-income families and can even be refundable.
Pay yourself first. When it comes to increasing savings, the old wisdom of paying yourself first comes to mind. Now with IRS Form 8888 you can directly deposit funds from your tax return into up to three different accounts, including your savings account. Form 8888 is a good way to save automatically, open new accounts, or add to existing accounts. You can even use the form to purchase a U.S. Savings Bond.
For more money saving tips, check out Facebook for our office page under LaRue County Cooperative Extension Service or U.K.’s Moneywi$e page.