There’s no tool or platform that allows you to input a handful of financial details to calculate the best possible return for your situation. If there were a guaranteed method of doing so, everyone would use it and all the tax preparers would be out of a job.
There are a number of steps you can take or certain professionals you can work with to increase the likelihood that you maximize the value of your tax return, but it’s not always easy or straightforward.
Married filers have a variety of potential statuses to choose from, and which you pick can influence the size of your return. The other people who have options are those who are not married but have dependents, in which case they can potentially file as single or head of household. People who have lost a significant other might also be able to file in a specific status (Qualifying Widow(er) with Dependent Children Filing Status).
Why does filing status matter? It can influence your tax liability and the standard deductions available. For example, filing as the head of a household with a qualifying dependent entitles you to a higher standard deduction than you would receive as a single filer. Other circumstances, like a son or daughter who covers more than half of a parent’s financial support, might qualify a filer to use that status as well (the parent doesn’t even need to be living with you).
Married filing separately might also result in the loss of some potential deductions and credits. There are only a handful of scenarios where married filing separately may result in a better tax return, including:
Determining when married filing separately is the best status for your situation isn’t always straightforward, especially if you’re trying to figure out if the savings on Arizona state taxes justify the loss of credit eligibility on federal income taxes. It’s likely in your best interest to consult with an experienced tax preparer for advice before choosing.
There are an astonishing number of tax credits available to American taxpayers, from the lifetime learning credit and home energy credits to credits for retirement contributions and childcare. Most DIY tax filers simply don’t know about all the tax credits they are eligible to receive, and it’s not uncommon to miss some. This may result in the taxpayer taking the standard deduction because, based on what they know, it’s higher than their potential itemized deduction, or they simply settle for a less-than-perfect itemized deduction.
Identifying all available tax credits is one of the primary reasons it’s beneficial to consult with an experienced tax preparer.
If you want to get the best return possible, knowing all your tax credits can help. Keep in mind that claiming credits may require evidence, so it’s good to develop the habit of saving receipts and bills to ensure you can verify the expenses.
Credits are subtracted from the taxes you owe. Deductions decrease your income tax liability by reducing your taxable income. In other words, a $3,000 tax credit would reduce $20,000 of taxes owed to $17,000, while a $3,000 deduction would reduce your taxable income from $80,000 to $77,000.
There are two types of deductions: above-the-line and below-the-line deductions. Above-the-line deductions are used while calculating your AGI, while below-the-line deductions are subtracted from your AGI after it has been calculated.
Knowing the deductions you qualify for and how they should be calculated based on their status is another thing a tax preparer can help you with. It’s important to apply these deductions properly to maximize their value and reduce the likelihood that you do something wrong and are forced to pay additional fees, interest or get audited.
The end of the calendar year can be more important than the tax filing deadline. It can be beneficial to have deductible activities finished within the year you’re claiming them. In other words, you might want to ensure you use all the dollars in your flexible spending account for qualifying healthcare expenses and make all your planned charitable donations or IRA contributions prior to the end of the year. There are exceptions in some circumstances, but it’s often easier to get these done within the tax year.
The tax preparers at H&H Accounting Services are committed to helping Phoenix taxpayers choose the right status for their situation and maximize their tax credits and deductions. Don’t hesitate to call us at (480) 561-5805 to have your tax preparation questions answered.
