Maximize your 2018 tax refund: 3 key tax tips to put cash in your pocket after you file your return
Surprises can spring up at the last minute come tax time. You might have big plans for how to spend your refund, for example, only to find out you actually owe the IRS money. If you tried to write off your home office, or claimed one of the other lesser-known deductions the IRS commonly sees as red flags, you might find your forms under additional scrutiny.
That’s why it’s never a bad idea to get your tax return in sooner rather than later. The sooner you pull the trigger and fill out those tedious online forms, the more time you’ll have to rectify a potential mistake — as well as get ahead of scammers trying to claim your refund on your behalf. Fortunately, if you still haven’t knocked out the task of filing, there are still lots of ways you can lower your 2017 bill before the April 17, 2018 Tax Day deadline.
If you’re among the 21% of Americans who say they are worried about owing the IRS money after submitting their return, according to a recent NerdWallet study — or if you simply want to get as much back as possible — then it’s definitely worth taking a closer look at these three top last-minute tax moves.
Future you will be very grateful!
1. Go through those receipts
Before you file your taxes, it’s a good idea to go over your bank and credit card statements from last year for any ideas for possible deductions you may have missed. For example, if you rolled the dice on bitcoin last year — and got your timing wrong — you may have a tax deduction coming to you.
That’s because if you bought an investment (including cryptocurrency) in 2017, and then sold that asset after it lost value, then you can deduct up to $3,000 of those losses against other forms of income including your salary, Forbes reported. Simply put, the amount of your normal earnings subject to tax drops.
Another deduction that’s easy to miss? Let’s say you took a vacation last year where you also got a little work done. If you racked up some unreimbursed business expenses while mixing work and pleasure last year, your business expenses are still tax deductible, even if you’re a salaried employee.
And other random deductions you might not know you are able to take include, expenses on your home office (with limits), student loan interest (which you can take on top of the standard deduction) and deductions for your medical expenses.
Finally: Maybe bae lost their job last year: If you live with a partner (or roommate) who made less than $4,050, you covered more than half of their expenses and they’re not being declared as a dependent by anyone else, you can declare them as a dependent.
2. Open up — or add to — a traditional IRA
Though the window for a lot of tax-saving moves closed at the end of 2017, there are a few exceptions. Contributions to a traditional individual retirement account, for example, can be deducted from your 2017 return all the way up until the April 17 deadline to file. It’s a move so clever that three quarters of Americans think it’s illegal, according to a recent NerdWallet study. (It’s not!)
Not everyone can claim the full extent of their contribution, but if you’re an individual who doesn’t receive a retirement account through work or makes less than $62,000 annually, you can deduct the full $5,500 maximum contribution from your tax bill. (You get a partial deduction if you have a plan at work but make less than $72,000 for an individual.)
For a person making around $50,000 a year and claiming the standard deduction, NerdWallet estimated that this strategy could actually save you about $1,000 total.
Spending $5,500 to save $1,000 may not sound like it makes economic sense, as NerdWallet noted, but in the case of retirement contributions you are not so much “spending” the money as investing in your future self. You get the benefit of buying into assets that will appreciate for decades.
After 40 years of earning 7% interest that’s compounded annually, for example, that $5,500 could be worth more than $80,000, according to Investors.gov, without making extra contributions or accounting for your dividends, either.
3. Put some money toward next year’s medical bills.
There are a few caveats on the IRA move: You don’t want to sacrifice guaranteed returns for likely ones, for example, meaning you shouldn’t let funding an IRA keep you from taking advantage of a company-sponsored 401(k) match. And if you’re young and upwardly mobile, it may make more sense for you to contribute to a Roth IRA instead of a traditional one, which can’t be claimed on your tax forms but which can be withdrawn tax-free once you enter retirement. That’s a pretty big perk, particularly if you expect to find yourself in a higher tax bracket after four or five decades on the job.
If funding an IRA won’t work, and you’re in a high-deductible health insurance plan, you can still lower your taxable income by making contributions to a health savings account. Like funding an IRA, funding an HSA can lower last year’s tax bill through the April 17 filing deadline, and is an “above the line” deduction, meaning you can claim it whether or not you itemize.
You and your employer can contribute up to $3,400 to an HSA each year and your withdrawals — along with the interest you earn — aren’t taxable, as long as you spend the money you take out on qualified medical expenses, which can range from doctors visits to smoking cessation programs and even, in some cases, service animals.
Alternatively, if you don’t incur enough medical expenses over the course of the year to use all of your HSA up, you can also invest that money, giving you a way to supplement the tax-advantaged market gains in your 401(k).
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