Tax tricks that could save you thousands
Even though it’s still early to file your taxes, the sooner you crunch the numbers on your return, the better off you could be. The IRS issued more than 111.8 million refunds for the 2018 tax year, with taxpayers receiving an average payment of $2,869.
Boost retirement contributions
Contributing as much as you can to your retirement — via, for example, an individual retirement account — is one of the best ways to reap a tax benefit. “By contributing to an IRA, you directly reduce your taxable income and save for your retirement at the same time,”
Fund a health savings account
Another way to reduce your taxable income is to contribute to health savings account, or HSA. (You need what’s known as a high-deductible health plan to do this). And, you have until the April deadline to do so for the 2019 tax year.
“Health savings account contributions can reduce your income eligible for taxation, as well as help with planning future medical costs,” said. “That’s always a good thing for your personal finances in the long run.”
You can contribute up to $3,500 if you’re single.
The limit goes to $7,000 for couples and families.
You can add an extra $1,000, if you’re 55 or older.
Collect tax credits
Tax credits are particularly valuable because they reduce your tax bill on a dollar-for-dollar basis. For example, families can deduct up to $2,000 from their federal income taxes for each qualifying child under 17. If you qualify, that $2,000 child tax credit will save you $2,000 in taxes.
Tax Refund: Things To Do & Things Not To Do
Tax season is finally over, and millions of Americans will receive checks in the mail in the coming weeks from the IRS. Although I do some consulting and other independent work (which means that I don’t typically receive a tax return at all), my parents often received a very nice return (having a low income and a lot of dependents does that for you).
things not to do with your tax refund:
1. Buy lots of little frivolous things. Quite often, after getting a return, my parents would take the entire family out to dinner a few times. One year, they bought a Nintendo; another year, we got a giant new television when the old one was fine.
2. Get a new car. Income tax returns often meant automobile upgrades, even if the old one was still running fine.
3. Put the check directly into a checking account “for safekeeping.” This idea was heading in the right direction, except by putting it in the checking account, it didn’t earn anything, and over time it slowly was spent on all kinds of unnecessary things until it was gone.
4. Loan it to family members. Twice, the entire return was “loaned” to a family member who just simply never repaid the “loan.”
5. Have a giant party. At least one year, my parents had a giant spring party with tons of food and drink that ate almost all of their tax refund.
Even as a child, I knew that this probably wasn’t the best way to handle your tax return, and now as an adult, I can see even more clearly what you should be doing with a tax return.
Here are much better options for you to use your tax return on.
1. Start (or supplement) an emergency fund. Very few Americans have an adequate emergency fund – that is, a savings account somewhere that contains money that could be used for living expenses for several months in the event of a major crisis, like job loss. Sock the return away in a high interest savings account (like the one from ING Direct) and let it just sit there until disaster strikes. This way, the disaster won’t wreck your finances – you can just go withdraw the money and it’s taken care of.
2. Invest it in a mutual fund. We have a mutual fund going so we can have our dream house at some point in the future. This is a big part of our current reasoning in our house hunt – if we buy a less expensive home now, one we can easily make the 20% down payment on, we can continue to build this fund and eventually buy a much nicer home. This is a perfect option if you have a big long term goal, like a home, that’s far down the road.
3. Start (or supplement) a Roth IRA. If you need to kick retirement saving into high gear, look into starting a Roth IRA. It’s a great way to save money for retirement without any tax issues at all.
4. Seed your own business. Roll the money into things you could use to start a side business. Not only will you be able to deduct that money next year, but you’ll also lay the foundation for another income stream.
5. Put it in a 529 for your children. Use that money to lay the financial groundwork for your child’s college education. A 529 plan allows you to easily invest money with tax-free growth for educational expenses down the road.
6. Start (or supplement) a car fund. This doesn’t mean that you should go replace your car, but merely that you’re respecting the inevitable need to replace your current automobile.
7. Do a home improvement project. Roll that money right into new kitchen cabinets, a freshened-up bathroom, repainting some rooms, or a new carpet. Home improvement projects can increase the value of your home, which is especially important if you foresee a move in the coming years.
8. Make your living space more energy efficient. Replace all of your lightbulbs with CFLs, put in programmable thermostats, air seal your home, get a blanket for your water heater (if it needs one), and so forth. Doing these things all together can significantly reduce your monthly energy bill, meaning that in the long run the money you spent will become a tremendous investment with monthly dividends on your electric bill.
9. Buy an appliance that encourages eating at home. Similar to the energy efficiency idea, purchasing an appliance (like a deep freezer or a stand mixer) that can encourage you to eat at home more often will gradually reap rewards over time, as you begin to prepare food at home. A deep freezer is one of the first investments we plan on making when we have our own home, because we can prepare many meals well in advance and merely pull them out and toss them in the oven in the evening.
10. Buy individual stocks. You could even take the money and start an individual stock investment account. This is a good way to get very familiar with the stock market and individual stock investing, though it is not something I actively pursue at this point. Remember, though, that individual stock investing carries substantial risk – but has the potential for substantial reward.
Lodging a tax return
Lodge online for free with myTax
You can lodge your return using myTax, the ATO’s free online tool. You need a account linked to the ATO to lodge online. Returns lodged through are usually processed within two weeks. Lodging online with myTax is easy. Most information from employers, banks, government agencies and health funds will be pre-filled into your myTax by mid-August. You just have to check the information, enter any deductions you have, and submit. MyTax will then calculate your tax for you.
Declare all your income
Most of the information about your income will be pre-filled from details the ATO receives from your employer and financial institutions. There may be other income you need to add yourself.
Common types of income that must be declared includes:
employment income
government payments
super pensions and annuities
investment income (including interest, dividends, rent and capital gains)
income from the sharing economy (for example Uber or Airbnb)
compensation and insurance payments
Work-related expenses
To claim a deduction for work-related expenses:
you must have spent the money yourself and not been reimbursed
it must be directly related to earning your income
you must have a record to prove you paid for it
When your expenses meet these criteria, here’s a list of the things you may be able to claim.
Vehicle and travel expenses — If you use your car for work or work in different locations, then you may be able to claim a deduction. This does not normally include the cost of travel between work and home.
Clothing, laundry and dry-cleaning expenses — To claim the cost of a work uniform, it needs to be unique and distinctive. For example it contains your employer’s logo, or is specific to your occupation, like chef’s pants or coloured safety vests.
Self-education expenses — If the study relates to your current job, you can claim expenses like course fees, student union fees, textbooks, stationery, internet, home office expenses, professional journals and some travel.
Tools and other equipment — If you buy tools or equipment to help earn your income, you can claim a deduction for some or all of the cost. Examples include protective gear, including sunscreen, sunglasses and hats if you work outside.
When tax prep is free, you may be paying with your privacy
So this tax season, I started asking why, exactly, all those “free” online tax services are free. One used by more than a million Americans had an alarming answer: Credit Karma Tax takes the intimate details of your tax returns — like how much you earn and pay for your mortgage — to target you with financial advertising.
You probably already suspected that products such as Intuit’s TurboTax and H&R Block offer limited free service as bait to sell you fancier paid services. Then there are a dozen free, no-upsell services run pro bono by the tax-prep industry — but only for people who earn less than $66,000 per year. (Dubbed “Free File,” these services are often buried; you can find them linked directly on the Internal Revenue Service website.)
A third kind of free tax prep, offered by Credit Karma, is blazing a new path: paying with your privacy. Available since 2017, Credit Karma Tax is an extension of the credit score website that’s already used by 85 million people. The tax service is really free — even if you use complicated IRS forms. It makes money by showing you tailored “offers” for credit cards and loans based on a profile of your financial life, which includes your tax returns unless you adjust a setting to opt out.
Credit to Credit Karma’s CEO Kenneth Lin: He spoke openly with me about his business. One reason Credit Karma got into the tax game, he said, is because it rounds out the data it needs to determine when customers might be eligible for, say, a new personal loan. Credit Karma can make between tens and hundreds of dollars each time someone accepts one of its loan or card offers — and the more accurately it can target us, the more money it makes.
There’s a fine line between useful and creepy with surveillance. For some, Credit Karma’s offers might be acceptable, even time- and money-saving. To me, Credit Karma Tax is taking a business idea that hasn’t worked out well for us with Facebook and applying it to even more sensitive information
Tax time: what you need to know before filing your student tax return
Chances are that as a student, you’re focused more on acing finals or planning a ski trip than filing taxes. You may even believe that as a full-time university student you’re exempt from paying taxes.
Claim your tuition credits.
students currently enrolled in a college or university can claim tax credits for tuition fees (any course that costs more than $100) and examination fees for licensing and certification.
Deduct student loan interest.
As a student, you can claim a non-refundable tax credit based on the interest you’ve paid on government student loans. If you don’t need the deduction, Waterman says you can carry the tax credit for student loan interest forward for up to five years and claim it on future returns after you’ve completed your studies.
Considerations for International Students.
If you’re studying, but it isn’t your home country, you may still need to file a tax return based on any earnings received from working as a teaching assistant, tutor, or from taxable scholarships.
Think about moving expenses.
Have you transferred from one university to another this past year or moved at least 40 kilometres closer to your school? If so, you may be eligible to deduct moving expenses such as transportation and storage costs, temporary living expenses, and incidental costs (utility hook-ups, etc).