Extra Time To Pay Taxes You Owe
If you owe a balance due to the IRS, you may still have a good reason to file your tax return as soon as you can. If you submit your return in the middle of January, you do not have to pay taxes you owe until the filing deadline. Preparing your Form 1040 early will give you time to arrange your payment. This extra time is particularly helpful to taxpayers who need to find out exactly how much they will owe the IRS.
Ways To Get A Bigger Tax Refund
Want to get a big tax refund come tax filing season? You can minimize your tax liability, and potentially snag a larger refund, by taking advantage of every possible tax break. In this article well discuss a few strategies to keep in mind as you look to get the biggest refund possible. Keep in mind, though, that if you want to go beyond this years tax refund and minimize taxes on your long-term financial plan, your best bet is to find a financial advisor.
Gym And Health Club Fees
Even if your doctor recommends you lose weight for your health, you cannot deduct expenses that are merely beneficial for your health, like gyms and health clubs.
- Tax Cheat: However, if your doctor specifically prescribes a gym or health club membership for a diagnosed medical condition it will qualify as a medical deduction.
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You Could Face Civil Penalties
Penalties will vary based on how much your understated your tax. If you made a simple error and the IRS adjusted it, you might not have to pay any penalty.
Bigger understatements mean bigger consequences. In this case, the most common penalties are:
- Negligence penalty: 20% of the additional tax
- Fraud penalty: 75% of the additional tax due to fraud
Common Employment Tax Fraud Scams
While failure to properly remit or pay over employment taxes may not seem the most serious crime, it is a hardball issue for the IRS. Conviction on one count of employment tax fraud can earn five years in prison. The IRS routinely identifies and investigates employment tax scams that take a number of forms, including:
- Employment leasing: When an employer outsources their personnel and payroll responsibilities it is called employment leasing. While an employer contracts help from the outsourcing company, the outsourcer is responsible for collecting and paying over employment taxes. Sometimes these middleman organizations pocket employment taxes, close up shop, and disappear when notified of an impending IRS civil auditleaving a significant tax liability.
- Pyramiding: A common employment tax scam is the practice of pyramiding, which is the IRS term for business owners who withhold payroll taxes and pocket the money with no intention of turning it over to the IRS.
- Cashing out: When employers or outsource employment agencies pay employees in cash, the opportunity for tax crime rises across the board. In addition to skirting Workers Compensation laws, employers can falsify payroll records, underreport the number of employees on the books, or underreport the amount of payroll taxes owed.
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Faqs On Tax Saving Fixed Deposits
Most banks require you to make a deposit of at least Rs.100 for this scheme.
No, banks do not allow premature withdrawal in tax-saving FDs.
An investor can claim up to Rs. 1.5 lakh per annum with tax-saving FDs.
Anyone who wants save money in taxes can invest in a tax saving FD.
No, usually there are no risks involved in tax-saving FDs.
The scheme comes with a tenure range lying between 5 years and 10 years.
When the fixed deposit period expires, the maturity sum will be transferred to the FD accountâs savings bank account.
No, the interest is taxed under TDS.
Yes, most banks offer an additional FD interest rate to senior citizens.
DCB Bank offers 6.90% p.a. for the general public and 7.45% p.a. for senior citizens.
Hiding Your Gambling Winnings
If you won big at the casino, be sure to let Uncle Sam know. All of your winnings must be reported as “other income” on line 21 of your 1040.
Don’t try to hide your money: The entity paying you is required to send you a Form W-2G and must tell the IRS about your windfall.
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It Still Pays To Go Green
If you’ve been thinking about adding solar panels to your house or buying an electric vehicle, it could do wonders for your tax refund. The 2017 tax reforms put some new limits on green tax credits, but most of the tax breaks are still in effect through 2025.
The Residential Renewable Energy Tax Credit, for example, allows you to claim a tax credit up to 30 percent of the total cost of a home renewable energy project that’s up and running by the end of 2019. Qualifying upgrades include installing solar panels or a solar water heater, small wind turbines or even geothermal heat pumps. After 2019, the value of the tax break starts to go down, so that improvements placed by in service in 2020 get 26 percent, and ones in 2021 get 22 percent .
The same is true if you buy a plug-in electric vehicle like a Nissan Leaf or a Chevrolet Bolt. For most of these cars, the IRS will give you a tax credit of up to $7,500. For more popular vehicles like the Tesla models and the Toyota Prius Prime, the credit is less, but it’s still worth snapping up the tax breaks while they last .
Both the renewable energy credit and the electric vehicle credits are nonrefundable credits, meaning that they are subtracted dollar-for-dollar from your tax bill, but they won’t result in a tax refund by themselves. That said, these green credits combined with other refundable tax credits can significantly boost your refund.
Avoiding A Tax Extension
Filing your tax return early may help eliminate the need to file an extension. Extensions of time are often required as a result of disorganization more than financial need. Some people who wait until the last minute to file their returns simply need time to look for additional deductions or gather receipts.
- Push the process too close to the filing deadline, and you increase the likelihood that you will need the help of a tax professional to help you sort your finances and complete your return.
- Even worse, if you file an extension but don’t pay what you owe if you have a balance due, the IRS will charge you interest and penalties on the outstanding tax debt until it is paid in full.
- Preparing your tax return early in the year helps you avoid this situation.
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Ways To Increase Your Tax Refund You Never Thought About
Laying the groundwork for a tax refund requires some simple tax planning, a little research and some forethought. Reviewing your tax status, consulting your spouse when filling out your W-4s and taking advantage of several tax credits can help you increase your tax refund. TurboTax also can help decide which credits can get you the biggest refund.
For information on the third coronavirus relief package, please visit our American Rescue Plan: What Does it Mean for You and a Third Stimulus Check blog post.
Tax Audit Penalties: What Happens If You Get Audited And Fail
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Make Those Kids Count
No one has children just for the tax breaks, but it’s a nice perk. In the past, parents could cash in on dependent children in two big ways: the personal exemption and the Child Tax Credit. Unfortunately, the Tax Cuts and Jobs Act of 2017 got rid of the personal exemption, which allowed taxpayers with families to deduct a generous $4,050 each for both parents and another $4,050 each for every dependent child under 19 years old, plus full-time students between 19 and 23 years old.
The good news is that the federal government doubled the value of the Child Tax Credit from $1,000 to $2,000 each for every dependent child 16 years old or younger . The Child Tax Credit is much more valuable than the personal exemption because it’s a credit, not a deduction. That means the full dollar value is subtracted from your final tax bill, not just your taxable income. Even better, it’s a refundable credit, meaning that if your credits are larger than your tax bill, you get to keep the change.
There is a tradeoff, though. Notice that the personal exemption used to cover older kids, including those in college. While it’s true that the Child Tax Credit is only good up to 16 years old, the tax reform bill introduced a new $500 tax credit for children up to 23 years old who are full-time students as well as $500 each for other “qualifying relatives” who live in the household, including elderly parents .
Opt For Life Insurance Plans
Life insurance policies enjoy tax waivers on both premium payments and the amount disbursed on maturity, respectively.
Income Tax Act contains provisions under Section 80C for premium payments, and Section 10 for the sum assured received on maturity or premature demise of the insured, whichever is earlier.
Nonetheless, the tax benefits of up to 1.5 Lakh spent on annual premium can be claimed under Section 80C, provided it is less than 10% of the total sum assured, if the policy is taken after 1st Aril 2012.
In case the policy was availed before 1st April 2012, claims under Section 80C can be made if the total premium payments do not exceed 20% of the sum assured.
Sum assured realised on such life insurance policies is also exempt from any tax calculations under Section 10, provided it conforms to the above-stated rules.
Purchase or renewal of life insurance cover, along with annuity payments on such policies through yearly salary is eligible for tax waivers of up to 1.5 Lakh under Section 80CCC as well.
Under section 80CCD, the only certain pension funds under section 23AAB are eligible for waivers of up to 1.5 Lakh.
Also, if individuals decide upon investing in Unit Linked Insurance Plans , the insurance section enjoys tax waivers, as stated above.
The portion of investment channelled to the stock market also does not attract any long-term capital gains tax.
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Get A Bigger Tax Refund: Max Out Your Ira
Setting aside money in a traditional IRA is a great way to build your nest egg and score an additional tax bonus. You can fund your IRA for the previous tax year right up to the and your contributions may be partially or fully deductible. Its an above-the-line deduction, which means you can take the deduction even if youre not itemizing.
You may also be able to claim a tax credit for your contributions. The Retirement Savers Credit applies to contributions to both traditional and Roth IRAs, but you have to meet specific income guidelines to qualify.
When it comes to filing your taxes, every penny counts, especially when youre trying to beef up your tax refund. The more you know about which tax benefits you qualify for, the more money youll be able to put in your pocket.
Did You Get More Money In Your Third Stimulus Check All The Reasons Why
The new stimulus checks for up to $1,400 per person started hitting bank accounts recently, and while you can track your payment online now, the IRS website won’t tell you the amount of money you’re due. In addition to our stimulus calculator, there are other clues that can reveal every way your check size could increase.
Additionally, the stimulus bill could give you even more money through the Child Tax Credit, more unemployment insurance and extra tax breaks. Below, we’ll help you determine how much stimulus money you can expect based on the eight factors. It’s also possible you won’t qualify for a stimulus payment at all. We’ll walk you through some hypothetical situations. This story was recently updated.
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Claim The Homestead Tax Credit
Do you live in a home thats not used as a rental or investment property? You can claim the homestead tax credit or exemption. This is where the homeowner is excused a certain dollar amount or percentage of home value from property taxes.
For example, your home value is $200,000 and your property tax rate is 1% your annual bill would be $2,000. But if you applied for a homestead tax credit and are eligible for a $50,000 credit, then your taxable value is now $150,000 and your yearly tax bill is now only $1,500. A $500 savings.
Check your local county treasurers office for a form to fill out and file with them.
The Government Will Pay You To Save For Retirement
Truth. Were not exactly talking about the tax benefits of contributions to retirement accounts here. While putting money into an IRA or a 401k is a great idea both in terms of socking money away for retirement and saving on taxes theres a little-known tax credit out thats even better.
The Retirement Savings Contributions Credit, also known as the Savers Credit, puts money in your pocket if you contribute to an IRA or an employer-sponsored retirement plan. While you have to qualify, via a formula incorporating your tax filing status and your adjusted gross income, you may earn a credit for as much as 50 percent of your retirement plan or IRA contributions up to $2,000 or $4,000 if filing jointly.
If you file jointly for tax year 2020 with an AGI of $39,000 or less, youll qualify for the 50 percent rate. Even if a married couples AGI is as high as $65,000, theyll still qualify for a 10 percent credit.
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You Can Deduct All Medical Expenses
Lie. This one is a bit trickier, since you can definitely deduct medical expenses. However, while medical expenses are a valid deduction, theres a huge restriction: You can deduct only the amount that exceeds 7.5 percent of your adjusted gross income. Thats a pretty high hurdle for many taxpayersbut still better than the former threshold of 10 percent.
On the plus side, there are a lot of expenses that fall under the deductible medical expense category. Heres just a small list of some items you can include:
- medical insurance premiums
If You Had No Health Coverage
Unlike in past tax years, if you didnt have coverage during 2020, the fee no longer applies. This means you dont need an exemption in order to avoid the penalty.
Important: Some states have their own individual health insurance mandate
If you live in a state that requires you to have health coverage and you dont have coverage , youll be charged a fee when you file your 2020 state taxes. Check with your state or tax preparer.
You will NOT get Form 1095-A unless you or someone in your household had Marketplace coverage for all or part of 2020.
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Best Move: Prepare A Complete And Accurate Return
Taxes can get complicated, and your situation may not be black and white. Thats why its important to take the time to gather all your records, research your IRS account and even consider hiring a tax pro to prepare your return or amend a return youve already filed.
A good tax professional will always try to help you pay the lowest amount of tax or get the largest refund that youre legally entitled to.
If the IRS has already contacted you about your return, youll need to take action:
- If the IRS selects your return for audit, learn how it works and what to do.
- If youre one of the millions of people who get a CP2000 notice, learn how to handle the issue.
- If you get another notice and youre not sure what it means, learn what to do next.
Need expert help? Learn more about H& R Blocks Tax Audit & Notice Services. Or make an appointment for a free consultation with a local tax professional by calling 855-536-6504 or finding a local tax pro.
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