How can i get more back on my taxes

how can i get more back on my taxes

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Refundable Credits

If you don't quality for any refundable credits, you can't get back more than you paid in. Common refundable credits include the Earned Income Credit for low-income wage earners, the American Opportunity Credit for college students or parents of dependent college students and the child tax credit for parents. If your refundable tax credits exceed the amount of your taxes due, you get the excess back as a refund. For example, say you had $1,000 withheld from your paycheck and your tax bill is $300: You would be getting a $700 refund -- $300 less than you paid in. But, if you also qualify for a $500 refundable credit, your refund increases to $1,200 -- $200 more than you paid in.

Minimizing Taxes Owed With Deductions

Deductions reduce the amount of your income tax you must pay income taxes on, which then reduces your tax bill. For example, if you're in the 15 percent tax bracket, a $1,000 tax deduction reduces your tax bill by $150. However, deductions can't decrease your tax liability below zero. So, deductions alone can't generate an income tax refund. But, pretend your tax liability is $250 and you have a $200 refundable credit. Without the deduction, you just get back what you put in because the tax credit reduces your liability to zero.

But, with a deduction that ultimately saves you $150, your tax liability drops to $100, and the $200 refundable credit gets you an extra $100 back on top of what you paid in.

Nonrefundable Credits

Like refundable credits, nonrefundable credits directly reduce your tax liability. However, nonrefundable credits can only reduce your tax liability to zero, but not below zero. For example, say your tax liability is $500 and you have a $300 nonrefundable credit. That reduces your tax liability to just $200. If you also have a $500 refundable tax credit, that means you'll get $200 more back than you paid in tax withholding. Examples of nonrefundable credits include the Retirement Savers Credit and the Lifetime Learning Credit.

Payroll Taxes

Your employer also withholds money from your paycheck for payroll taxes, which are the Social Security tax and the Medicare tax. These taxes are withheld separately from income taxes. Because Medicare taxes apply to all of your earned income, you won't have any of it refunded. Social Security taxes, on the other hand, only apply to a specific amount of earned income: Any excess isn't subject to the Social Security tax. If you work multiple jobs and have too much withheld, you can claim the excess as a refundable credit to offset your income tax liability when you file your tax return.

Source: ehow.com

Category: Taxes

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