NEW YORK (MainStreet) — So, you got your refund check and feel more than a little disappointed with this year’s kickback.
In theory, it isn’t a good thing to get a big check, because that just means the government was handing back the money you loaned it all year — interest-free. But let’s admit it: You’d prefer the bigger check, right?
If you think of a refund check as forced savings, you might be inspired to save more on next year’s return, says Neil Johnson, a tax expert and blogger in Chicago. MainStreet tapped Johnson and other 1040 experts for advice on plumping up your kickback next year.
Whether you choose to save the money is up to you, but either way, you’ll be happy to have it.
Uncle Sam offers countless tax breaks and credits that apply to all sorts of situations, whether you’re in a young family just starting out, or a single divorced parent.
Here are a few useful tax deductions and credits:
You're Supporting Kids (or Parents)
Has your college grad returned home or are you supporting an elderly parent? There's a tax credit for that.
“The Child and Dependent Care Credit can apply to a relative you’re taking care of, like if your sister came to live with you,” says Kay Bell, a blogger and tax reporter for Bankrate.com.
But as the IRS says on its website, “the care must have been provided so you and your spouse could work — or look for work,” and it covers only up to $3,000 of annual expenses for an individual, or $6,000 for two or more people.
If you meet the requirements, “the beauty of credits is that once you get your taxable amount, then your credits are dollar for dollar,” Bell says. So if you owe Uncle Sam $6,000 and get a $3,000 credit, for example, your tax burden will be cut in half come April 15. Deductions, on the other hand, reduce the amount of taxable income.
Claim the child credit on Form 2441 and make sure to include any and all documentation of what you paid for the care, including the taxpayer EID of the facility (such as a day care), and the Social Security number of any caregivers, such as a live-in nurse.
“It’s a double-check for the IRS to ensure [the caregiver] reports the income,” Bell notes.
You can also cut taxes by claiming a family member as a dependent if you’re providing more than 50% of that person’s living costs, even if that family member sometimes doesn’t live with you, Johnson says. That’s why so many parents claim their college-bound kids as dependents.
But taxpayer beware: One of Johnson’s clients claimed her mother — who was getting Social Security — as a dependent and the IRS balked, saying public assistance was more than enough to live on.
“You have to really look and see whether you are really providing more than half their support,” Johnson says. “I have that conversation every day with clients,” especially with regards to claiming student loans as “living costs.”
For more on student deductions, read on.