Our top ten tax tips for Individual Filers provides information to help you reduce your annual tax return bill in your 2024/25 Tax Return. You may also like our Tax Tips for Business Owners.
Organisation is key. It’s important to have one place, a file folder for each month perhaps, where you can keep your tax information. When it’s time to fill out the tax return, a lot of information is required and every detail counts in making it a smooth process.
The following tips will help put the final touches on your tax return and help plan for next year’s.
You can deduct up to $5,500 ($6,500 if you’re 50 or older) from your taxes if you and your spouse are not covered by a retirement plan at work. You can receive a deduction for your IRA contributions if you’re covered by an employer-sponsored plan, but you’ll have to follow the income limits.
To maximize your tax benefits in the future, make every effort to contribute the maximum amount allowable to your 401(k) or other type of deferred pension plan. This is especially true if your employer matches your contribution. Even if there is no match, all of the funds are tax-deferred and grow tax-free.
Something else you can do to plan for future tax seasons is to check your year-to-date withholding and consider changing the taxes withheld if you are expecting a large refund.
This really does matter if you are claiming the earned income tax credit, or EITC, or the additional child tax credit. The IRS is now required by law to hold all refunds on those returns until Feb. 27. The law was introduced in order to allow the agency additional time to detect and prevent tax fraud.
You will need to complete Form W-4 (Employee’s Withholding Allowance Certificate) in order to adjust the amount of taxes withheld and submit it to your employer.
Tax fraud is a national problem. If you received an Identity Protection PIN, or IP PIN, in the past, then you must provide this number on your tax return and on all future tax returns. An IP PIN consist of a six-digit number assigned to eligible taxpayers that helps prevent fraudulent returns from being filed under your Social Security number.
The IP PIN is your ticket in getting the IRS to accept your tax return. Be aware this IP PIN changes every year. You must ensure you have your latest IP PIN for the tax year in question and if you do not receive the notification in the mail, you will need to go to the IRS website to request and retrieve it.
Millions of lower-income people miss out on this every year. According to the IRS 25% of taxpayers who are eligible for the Earned Income Tax Credit fail to claim it. Some people miss out on the credit because the rules can be complicated. Others simply aren’t aware that they qualify.
The EITC is a refundable tax credit not a deduction.
The maximum amount of credit for Tax Year 2018 is:
The credit is designed to supplement wages for low-to-moderate income workers. But the credit doesn’t just apply to lower income people. Tens of millions of individuals and families previously classified as "middle class"—including many white-collar workers—are now considered "low income" because they:
The exact refund you receive depends on the following criteria:
To get a refund from the EITC you must file a tax return, even if you don’t owe any taxes. A point worth noting is if you were eligible to claim the credit in the past but didn’t, you can file any time during the year to claim an EITC refund for up to three previous tax years.
Child tax credits are designed to give an income boost to the parents or guardians of dependent children. How much credit you receive depends on your income. The child tax credit lets you reduce your federal income tax bill by up to $1,000 for each qualifying child under the age of 17 that you claim as a dependent. For 2017, the child tax credit is up to $1,000 per child.
The child tax credit is just that, it’s a tax credit. It’s not a deduction. Because it’s a tax credit, it directly reduces the amount you owe the IRS. So, if your tax liability is $3,000 but you’re eligible for, say, $800 of child tax credit, you now owe $2,200.
The child tax credit is non-refundable for 2017. (The credit will be refundable in the 2018 tax year for up to $1,400.) That means that if you’re eligible for $3,000 in tax credits but only owe the IRS $2,000, you won’t get the $1,000 difference refunded to you. Technically, you can get that $1,000, but you’ll have to claim what’s called the Additional Child Tax Credit.
If you’re thinking of having a spring clean, now is the time to get going. You can make money by donating things you no longer need or want in your life. There are many charitable organizations that accept items other than cash such as:
The deduction is limited to the item’s fair market value, and the items must be in good condition or better to be deductible. If the value of the noncash items is more than $500, then you must file Form 8283, Noncash Charitable Contributions.
If you, your spouse or dependents had higher education costs in 2017, there may be some tax savings for you. In fact there are multiple benefits available. The only difficult part is figuring out which one works best in your situation.
There are two education credits available
There are various conditions that may limit the benefit, but the IRS offers a useful interactive tax assistant tool in order to help you find your way through the information. You should receive Form 1098-T, Tuition Statement, from your school with the information required by the IRS to complete Form 8863, Education Credits.
Make sure you know what you need to report to the IRS on your health insurance. The Tax Cuts and Jobs Act of 2017 eliminated the individual penalty for not having health insurance, but the repeal doesn’t go into effect until you file your 2019 taxes in 2020.
The shared responsibility provision requires that you and your family have minimum essential coverage or qualify for a health coverage exemption. Otherwise, you must make an individual shared responsibility payment for all months that you didn’t have coverage or an exemption.
If you have a foreign bank account and the balance in the account greater than $10,000 total you will need to file what’s commonly referred to as an “FBAR,” a foreign bank account reporting form. The new name is FinCEN Report 114, FinCEN (Financial Crimes Enforcement Network). You must make sure you’re in compliance as the penalties are very high for failing to report.
The requirements don’t stop there. If you maintain very high balances in your foreign accounts, you’ll have to file IRS Form 8938, Statement of Specified Foreign Financial Assets.
You should be aware of the complex reporting requirements if you meet certain thresholds of ownership in any foreign corporations or partnerships, or if you are the beneficiary of a foreign trust.
The main forms relating to this reporting are:
Every so many years, the IRS changes the annual exclusion for gifts that you can give without having to file a gift tax return. If you gave more than $14,000 in cash, property or gifts to anyone, you must report the gift on Form 709. The annual exclusion is $15,000 in 2018. If you are married, you can give a combined $28,000 ($30,000 in 2018) and remain under the radar.
Please note that this applies to the person giving the gift; if you are receiving a gift you do not have to take any action. If you receive a gift from a non-U.S. person and it happens to be greater than $100,000, you will have to report this on the IRS Form 3520.
When filing your return, the quickest and easiest way to receive your refund is to electronically file your return and use direct deposit. If you owe money, use IRS direct pay from your checking or savings account.
You must ensure that you keep a copy of your filed tax return. Keeping this record will make your life so much easier if you require it in the future.