Maximizing Your Money: Smart Tax Strategies for employees

Hey there! If the mere thought of tax season sends shivers down your spine, you’re not alone. But fear not, because we’ve got your back with some friendly advice to help maximize your tax refund.— and yes, there’s still time to tackle this head-on! Let’s break down the essentials. 

Understanding the Tax Basics: 

2024 Tax Deadlines 

The first quarter of the year is crucial for taxpayers, with the main deadline typically falling on April 15th like this year. If this date slips by, remember, you can file for an extension, which gives you until October 15th to submit your paperwork. However, it’s essential to note that while the extension grants more time to file, it doesn’t extend the deadline to pay any taxes you owe. Paying after April 15th could result in interest and penalties on the amount owed. To learn more about filing an extension visit the IRS website here: https://www.irs.gov/forms-pubs/extension-of-time-to-file-your-tax-return  

2024 Tax Brackets 

The IRS uses tax brackets to determine how much you owe in taxes based on your income. These brackets are progressive, meaning as your income increases, so does the tax rate on your highest dollars earned. Understanding your bracket is more than a mere exercise; it can influence financial decisions, from investment strategies to retirement planning, affecting how much tax you’ll pay. Here’s a quick table showing the applicable tax brackets for this year’s tax season: 

If you have multiple jobs 

Taking on a second job or diving into freelancing to reach financial goals is a great endeavor however it can also significantly impact your tax situation, potentially pushing you into a higher tax bracket and affecting your eligibility for certain tax credits. For traditional employment, adjusting your tax withholdings using the IRS withholding calculator can help avoid a surprise bill at tax season. If your second job is a freelance position, you will have to navigate estimated quarterly tax payments and self-employment taxes to stay on top of your tax obligations.  Carefully managing your tax strategy in light of a second income is crucial to optimizing your financial outcome while pursuing your monetary objectives. 

Leveraging Free Tax Assistance 

For many, the cost of hiring a professional tax preparer or purchasing software can be prohibitive. Fortunately, there are free resources available: 

IRS Free File is a complimentary online offering for individuals with an adjusted gross income up to $79,000 as of 2023. Through a collaboration with eight tax preparation websites, filers can select a service that best fits their financial situation, including factors like income, age, geographic location, and specific filing requirements. Some of these platforms also provide the option of filing state taxes for free. It’s important to note that while Free File can be a valuable resource for eligible individuals, it may not offer all the necessary forms for everyone’s unique tax situations. Additionally, the program offers limited assistance in optimizing refunds or minimizing tax obligations. 

For those exceeding the income threshold for Free File, the IRS still offers access to fillable forms at no charge. These alternative lacks comprehensive guidance and offers only basic calculations, allowing users to manually complete their tax forms following IRS instructions. This option, however, does not cover state tax preparation. 

In 2023, the IRS introduced the Direct File pilot program, enabling direct online filing of federal tax returns for eligible individuals in select states, including Arizona, California, Florida, Massachusetts, Nevada, New Hampshire, New York, South Dakota, Tennessee, Texas, Washington, and Wyoming. Eligibility for Direct File is limited to W-2 employees and those receiving Social Security or unemployment benefits, or who have investment income under $1,500. Direct File allows filers to claim credits such as the Earned Income Tax Credit and the Child Tax Credit. However, it restricts users from itemizing deductions, claiming many other credits, or reporting additional forms of income, including capital gains and earnings from freelance or rental activities. 

VITA/TCE Programs: The Volunteer Income Tax Assistance (VITA) and Tax Counseling for the Elderly (TCE) programs offer free tax help to people making less than $60,000/year, seniors, persons with disabilities, and limited English speakers. 

Online Forums and IRS Resources: Websites like the IRS’s own can provide guidance on various tax topics, while community forums may offer advice and answers to more specific tax questions. 

Tips for maximizing your tax refund 

Maximizing tax refunds and minimizing owed taxes are crucial strategies for financial stability. Here are several tips specifically tailored to help: 

1. Claim the Earned Income Tax Credit (EITC): The EITC is a refundable tax credit designed for low to moderate-income workers. The amount you can receive depends on your income, filing status, and number of children. Many people don’t realize they qualify for the EITC, for 2023, income limits ranged up to $56,838 for single filers and $63,398 for those married filing jointly, with three or more qualifying children, scaling down to lower limits for those with fewer or no children, and investment income had to be $11,000 or less to qualify. The EITC amount varied from $11 to $7,430 for families with three or more qualifying children, reflecting its role in supporting low to moderate-income workers. Visit the IRS website to learn more on the EITC: https://www.eitc.irs.gov/partner-toolkit/basic-marketing-communication-materials/eitc-fast-facts/eitc-fast-facts 
2. Utilize the Child Tax Credit (CTC): The Child Tax Credit offers a tax break to families with qualifying children, allowing claims even without filing a standard tax return. To qualify, children must be under 17, related to you, provide less than half of their financial support, live with you for over half the year, and not file a joint return unless for a refund claim. They must also be a U.S. citizen, national, or resident alien. The full 2023 credit is available to those with incomes up to $200,000, or $400,000 for joint filers, with partial credits for higher earners. Claim the credit on Form 1040 and Schedule 8812, and explore additional credits like the Child and Dependent Care Credit and Earned Income Tax Credit for broader financial support. Click here to learn more: https://www.irs.gov/credits-deductions/individuals/child-tax-credit
3. Take Advantage of the American Opportunity Credit (AOC) or Lifetime Learning Credit (LLC) for Education Expenses: The American Opportunity Tax Credit (AOTC) offers up to $2,500 per student for the first four years of higher education for qualified expenses, with 40% (up to $1,000) refundable if it reduces your tax owed to zero. Eligible students must be pursuing a degree, enrolled at least half-time, and not have completed the first four years of higher education at the tax year’s start, among other criteria. The Lifetime Learning Credit (LLC) provides up to $2,000 per tax return for qualified tuition and expenses with no limit on the number of years it can be claimed, supporting undergraduate, graduate, and professional degree courses, including those improving job skills. Eligibility for LLC requires paying qualified education expenses for an eligible student at an accredited institution, with the student being yourself, your spouse, or a dependent listed on your tax return. Learn more about the AOC here: https://www.irs.gov/credits-deductions/individuals/aotc and the LLC here: https://www.irs.gov/credits-deductions/individuals/llc
4. Look into Local and State Tax Credits: Besides federal tax credits, many states offer additional credits and deductions that can further reduce your tax bill or increase your refund. These can include credits for renters, low-income families, or specific local credits based on your state. If you want to learn more, the FTC website has a handy table with state-by-state refunds available: https://www.irs.gov/credits-deductions/individuals/earned-income-tax-credit/states-and-local-governments-with-earned-income-tax-credit
5. File Even If You Earned Little: Even if your income is below the filing requirement, you should still file a tax return if taxes were withheld from your paychecks or if you qualify for any refundable tax credits. This could result in a refund that you would not receive otherwise.

About Claiming a Dependent: 

Claiming a dependent is probably the most common and sometimes misunderstood aspect of filing taxes. To be considered a dependent, the person must either be your qualifying child or qualifying relative, meeting specific IRS criteria: 

Qualifying Child: 

• Must be your child (biological, adopted, foster, stepchild), sibling, step-sibling, or a descendant of any of them (e.g., grandchild). 
• Must be under age 19 at the end of the tax year, or under 24 if a full-time student, or any age if permanently and totally disabled. 
• Must have lived with you for more than half the year (exceptions apply for temporary absences, like college). 
• Must not have provided more than half of their own support during the tax year. 
• Must not file a joint tax return for the year (unless the return is filed only to claim a refund of withheld income taxes or estimated taxes paid). 

Qualifying Relative: 

• Doesn’t have to live with you all year but must be related to you or live in your home all year. 
• Gross income must be below a certain limit (which the IRS adjusts annually). 
• You must provide more than half of the person’s total support for the year. 

Both types of dependents are subject to additional IRS rules and tests. Claiming a dependent can provide tax benefits such as the Child Tax Credit, Earned Income Tax Credit, dependent care expenses, and more, helping to lower your overall tax liability. It’s important to note that Dependents may need to file a tax return based on their earned income, unearned income, and gross income, or if specific conditions outlined by the IRS apply. If a dependent child cannot file their own return for any reason, a parent or guardian must file it on their behalf, potentially including the child’s unearned income on the parent’s return under certain conditions, such as the child being under age 19 (or 24 if a student) and having income only from interest and dividends below $12,500. Learn more about dependents here: https://www.irs.gov/publications/p501  

Conclusion 

Navigating the complexities of tax season with confidence is entirely achievable with the right knowledge and resources at your disposal. The key to maximizing your refund and minimizing your tax liability lies in staying informed about your filing status options, as well as claiming all eligible dependents. Whether you’re taking advantage of free tax assistance programs or exploring credits for education expenses, every step you take towards a more informed filing can contribute to better financial health. As tax season approaches, arm yourself with these insights and tools to make the process smoother and more beneficial for your financial future. 

This content is offered solely for informational purposes and does not serve as legal, financial, or tax advice. Given the complexity and the ever-changing nature of tax laws and regulations, the information provided here may not encompass all aspects of your personal tax situation or may become outdated. It is crucial for each reader to acknowledge that individual circumstances vary greatly, necessitating personalized advice. Therefore, we strongly recommend consulting with a professional tax advisor, accountant, or legal counsel to obtain advice tailored to your specific needs and to ensure compliance with current laws and regulations. Please note that neither Tapcheck nor any affiliated entities are responsible for the provision of legal, tax, or accounting advice. The responsibility to make informed financial decisions, guided by current and applicable laws, rests with you, the reader. We disclaim any liability for actions taken based on the information in this article.