What Steps Should You Take to Improve Your Taxes Next year?
You could be a single mom, single dad, or head of household who paid your first taxes this year. You could be a new business owner who also filed their first business return in 2022. Or you are like the taxpayers that say they have been doing this for a long time. It does not matter what type of a taxpayer you are; there is always something you can do to improve your taxes next year. There is no limit to the good things you can do to improve your financial situation. And this time, I am advising you to use taxes to save money, invest it and build generational wealth.
Saving money on taxes – the truth about tax refunds
We all like to talk about tax refunds, but do we take a pause and think about what makes up your tax refund? Do you ask yourself why you received that refund money in the first place? I can tell you that many of you get this refund only because you overpaid your taxes during the year. So, if you were like this, you would have lost some coins. This is because the money you overpaid the IRS is only returned to you without any interest. But had you invested that money or put it in a savings account, it would have gained some return or interest.
Nevertheless, the important thing to remember is that you all must go back and start thinking about the composition of your refund. That is where the real money is. Ask yourself if the refund is just an overpayment of your taxes, or is it because of some money you created by utilizing favorable tax laws?
What tax laws can you utilize to get a tax refund? Taxpayers can claim the refundable tax credits that result in the real gain in the tax refund money because it is the money you are getting from the government. Refundable credits examples are Earned Income Tax Credit (EITC), premium tax credit (PTC), American opportunity tax credit (AOTC), or Child Tax Credit (CTC). If you claim any or all of them and they reduce your tax owed to less than zero, the government will give you the remainder as a refund. Therefore, you should start asking if you do qualify for any of these credits. If you have children and not claiming the CTC, then you are losing out. If you are in the low-income brackets, you can claim the EITC and gain real money from the IRS.
So, all the above is to let you know that, beginning this tax year, don’t only focus on your tax refund just as a refund, but probe if it is just your overpayment of taxes or you actually claimed these refundable credits. Start looking at these credits to see which ones you qualify for. I am sure that many of you are eligible but don’t check if you can claim this credit, which can be up to $6,728 for the tax year 2021. Visit this page to check if you qualify for this credit based on your AGI and the number of children.
Aim to pay less tax (reduce your taxable income), not just to get a big refund
The tax game is not only won on the refund you get, because if you increase your withholding to get a huge refund, you will simply be getting your money back without any gains. But you can utilize several tax deductions and a combination of refundable credits mentioned above and some nonrefundable credits to get money from the government or not pay tax at all. Your aim will be to reduce your tax bill to zero. Many people have been doing this for years. It is possible; you can do it too. Talk to my team now and book a quick tax chat with me to learn about the many tax credits and deductions you can use to reduce your tax bill to almost zero.
You could have made some mistakes this tax season and feel like you overpaid your taxes; you are right to think like that. That is how you start to map a better way forward. The next step is to turn your worry about taxes into real action where you can talk to me to start planning your 2022 taxes so that you drastically reduce your tax bill come 2022 tax season next year.
Frequently Asked Questions
- How can I increase my tax refund?
The best way to increase your tax refund is to claim some refundable tax credits. Many people think letting their boss withhold more than enough is a good boost for their refund, but that’s not a great way of doing it. This is because if you do it like this, your tax refund will be made up of your money alone without the money from refundable tax credits. You are better off investing your money to gain some interest.
- How can I reduce my taxable income?
You can reduce it by claiming refundable tax credits you are eligible for. Or, you can claim itemized deductions and use tax planning to position yourself to qualify for several itemized deductions.
- How can we improve our tax system?
Unfortunately, the tax system seems to be getting more complicated as they try to ‘fix’ it. For example, the federal tax code was only 400 pages in 1913, but it was now 70,000 pages long in 2010. This just shows how complicated it keeps n getting for ordinary taxpayers.
- What happens when you increase tax?
When the tax rate increase, households’ disposable income is reduced by more or the same percentage points increase in the tax rate. However, the overall effect of a tax increase could even be bigger, given that companies will also now be paying more tax, and as usual, they will transfer the increased cost to households by raising the prices of their goods and services. Hence, disposable income for households is further affected.
- What are the benefits of tax reform?
Tax reform increases tax efficiency. This would help tax professionals easily help their clients maximize savings on taxes and file their returns with less complications.
- How do taxes help the economy?
Money collected from taxes is used to fund Federal Government activities such as infrastructure projects. These projects help create a workable environment for the private sector, which thrives and creates more jobs for the people. The more jobs are created, the larger the economic growth.
