If you want to know how to get the MOST money back on your tax return, you’ve come to the right place! In a perfect world, you should hire an accountant to do your taxes, but if you are just starting out as a freelancer doing them yourself is a breeze, IF you pick the right software.
You should be getting as close to NOTHING back when filing taxes because a refund means you are giving the government an interest-free loan with YOUR money.
If you are getting the money back on your tax return this year (compared with last year) and it’s more than a few hundred dollars, change your exemptions and have less withheld each pay period. If you are self-employed, you have the lucky task of figuring out how best to adjust that, and I suggest finding a professional to help. Besides, fees you pay to accountants to prepare your tax return are write-offs for business owners.
The first step when figuring out how to maximize your returns is to pick a company to file with. Tax return software companies offer competitive filing fees and streamlined electronic systems and many will guarantee the maximum return or your money back.
Most also offer audit protection, which might be something you want to consider if you’ve had a major life change, started a business, or received an inheritance. Spending a little bit up front with protection from the IRS can potentially save you THOUSANDS of dollars in back taxes and provide peace of mind.
I personally recommend TURBOTAX and find them to be the most comprehensive and affordable service out there, especially for freelancers and entrepreneurs.
1. Decide if you should itemize.
With TurboTax, you can run both scenarios and the software will let you know if you’d be better off taking the standard deduction or itemizing. Starting in 2018, the standard deduction has increased to $24,000 per year for married couples, $18,000 for the head of household, and $12,000 for singles.
I always start with itemizing because there are many areas I tend to forget that are deductible. Plus, I have a lot of expenses for my businesses. Generally itemizing is always a good idea if one or more of these situations applies to you.
In the past year have you…
- Paid interest and/or taxes on your home, property or business related vehicle loan?
- Racked up medical expenses that are not covered by your insurance (if you have it)?
- Paid out of pocket large amounts of un-reimbursed expenses from your job? – NOTE – This deduction has disappeared as of 2018.
- Donated cash and/or items to charities?
- Suffered loss through theft, fire, disasters, etc.?
- Started or continued a business?
- Paid interest on student loans?
2. Claim as many credits as possible.
Some of them include:
- Education Costs Credits – Did you pay for educating yourself or pay interest on school loans? Don’t overlook this one!
- Child Care Cost Credits – If you spent money on childcare (and kept good records with an individual or institution that is a licensed child care provider) then you can claim all or most of your costs.
- Child Tax Credit – If you have children, or took care of a dependent for part of all of the year, you will receive credit.
- Earned Income Tax Credit – For people earning less than about $9000 from farming, self-employment or other wages received.
3. Make sure you are claiming as many DEDUCTIONS as possible!
This is where most people miss out on key areas that will reduce their tax burden.
- Donations of goods, services (including your time and miles that were driven to volunteer) and money. All of these should be tracked, recorded and listed as a deduction. Make sure you have the paperwork to back up your claims!
- Child care costs to licensed and/or registered child care providers. This can REALLY add up, so be sure to keep receipts and ask your childcare provider to keep records as well.
- Sales tax on large purchases.
- Interest on student loans and mortgages. Not a good reason to be in debt, but if you are for these reasons, there is some relief.
- Home office expenses or obscure business-related expenses. Of course, you can claim percentages of your home utility costs and square footage for office space, but did you know you can write off things like cat food for stray cats to keep mice away (if you own a junkyard) or body oil if you are a professional bodybuilder? I kid you not. Make sure you can prove it is directly related to your profession and NEEDED. Things like uniforms and steel toe boots count as well.
These are just a few of the MANY deductions possible. If you use a service like Turbo Tax, they guarantee to get you the biggest refund possible, so why not give them a try?!