No doubt, every taxpayer wishes to pay little tax or receive the most money in their tax refund. However, most of us never do anything to fulfill this wish while there is a way to get back more money in a tax return. Sometimes, we even end up paying more taxes than due to the IRS.
There are various strategies to pay the little tax or receive more tax returns. Thorough research can help you know whether you are eligible for multiple types of deductions, tax credits, and how you should be filing your income tax return. Looking into these possibilities can definitely help you secure more on your side.
If you also want to get more tax refund but always end up helpless, this list will help get the biggest refund this year.
3 ways to pay minimal taxes on your income
Reconsider your filing status
Filing status affects your tax return, especially if you are married. Therefore, you should always think before choosing your filing status. Filing jointly has its own perks, such as certain deductions which are not available for separate filers.
While most taxpayers file jointly and think that it’s the best way, but actually, it’s not always the case. So, you must weigh both statuses carefully to maximize the final tax refund.
Filing separately while married requires more effort and time, but it can secure you more tax savings under appropriate conditions.
If one spouse has more medical expenses due to job loss, separate filing might allow greater deductions.
The child tax credit is also available for spouses filing separately. In 2020, the credit was $2,000/child under 17 years of age, which can be claimed by separate filers with adjusted gross pay less than $200,000($400,000 for joint filers).
Moreover, for unmarried filers, claiming a qualifying dependent by filing as head of household can also help cut the taxes and receive more deductions and tax bracket.
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Various deductions can qualify you for a big tax refund which you often overlook:
- Charitable contributions: Keep track of even your small charitable contributions. At the year-end, the contributions would end up as a bigger expenditure to get a tax deduction.
- Child and dependent care: You can use up to $6,000 of qualifying expenses for Child and Dependent Care Tax Credit.
- Reinvested dividends: It is not a deduction, but it can reduce the tax liability. If you have dividends from mutual funds investment, include them on a cost basis. So, when you sell your shares, you can reduce the taxable capital gain.
- Earned Income Tax Credit (EITC): It helps low or moderate-income families with children. For three or more children, the credit is up to $6,660 for the year 2020. With EITC, you can get a net refund even if you don’t pay any tax.
- Student loan interest: If you are obligated to pay this, you can take its deduction even if you are not paying yourself.
This time, look into all possible tax deductions and embrace ones for which you qualify. The tax deductions include:
- State sales tax
- Certain jury duty fees
- Medical miles
- Charity miles
- State income tax
Contribute to IRA and HSA
Until the filing deadline, you can contribute to the traditional IRA for the previous year. This allows you to claim the credit on return, filing early and using the tax refund to open the account.
Traditional IRA contributions can reduce the taxable income, and if you are above 50 years of age, a catch-up provision can be added to your IRA.
If you contributed towards Roth IRA, it wouldn’t give you any deduction, but you can still qualify for saver’s credit.
Contributions to a Health Savings Account also reduce the taxable income, which you can make until the filing deadline. However, you must fulfill certain requirements to open the account and contribute to HSA.