Taxes are an essential part of how Americans get access to things like roads, schools, parks, emergency services, and national defense. But that doesn’t mean paying taxes is any fun. You should do your best to minimize your tax bill in any legal way possible. That’s what big companies and millionaires do. And you can do it too!

Read on to learn more about how your taxes work and how you can maximize your tax return to get the best tax refund for 2018 and beyond.

Understanding Your Tax Bracket

Taxes in the United States are built on a graduated scale. That means you pay more on each dollar as you earn more. Tax brackets are not retroactive. Earning at the top bracket, the first dollars you earn in the year are taxed at the lowest tax rate.

For 2018, these are the tax brackets that apply to the most common financial situations:

Single’s Tax Brackets

Taxable Income Tax Rate
$0–$9,525 10% of taxable income
$9,526–$38,700 $952.50 plus 12% of the amount over $9,525
$38,701–$82,500 $4,453.50 plus 22% of the amount over $38,700
$82,501–$157,500 $14,089.50 plus 24% of the amount over $82,500
$157,501–$200,000 $32,089.50 plus 32% of the amount over $157,500
$200,001–$500,000 $45,689.50 plus 35% of the amount over $200,000
$500,001 or more $150,689.50 plus 37% of the amount over $500,000

Tax brackets are raised slightly for 2019. This means you can earn a bit more before advancing to the next bracket.

Married Filing Jointly or Qualifying Widow(er) Tax Brackets

Taxable Income Tax Rate
$0–$19,050 10% of taxable income
$19,051–$77,400 $1,905 plus 12% of the amount over $19,050
$77,401–$165,000 $8,907 plus 22% of the amount over $77,400
$165,001–$315,000 $28,179 plus 24% of the amount over $165,000
$315,001–$400,000 $64,179 plus 32% of the amount over $315,000
$400,001–$600,000 $91,379 plus 35% of the amount over $400,000
$600,001 or more $161,379 plus 37% of the amount over $600,000

Tax brackets are raised slightly for 2019. This means you can earn a bit more before advancing to the next bracket.

For example, if you are married and have a household income of $75,000 per year, you would pay 10% tax on the first $19,050 you earn in the year and 12% on the rest of your income.

Tax rates are based on your Adjusted Gross Income (AGI), which is your taxable income after deductions. In the next two sections, we will take a more in-depth look into how deductions work.

Itemize or Take Standard Deduction?

Everyone gets an automatic freebie that lowers their tax rate through a standard deduction. When the tax rates changed for 2018, the standard deduction nearly doubled. With an increase in the standard deduction for 2018, the tax code eliminated personal exemptions.

These are the standard deduction rates for 2018:

Filing Status Standard Deduction
Single $13,000
Married Filing Jointly or Qualifying Widow(er) $24,000
Married Filing Separately $12,000
Head of Household $18,000

The standard deduction is slightly higher for 2019.

There is a long list of deductions that you may be able to take, but only if the total is higher than your standard deduction. Those deductions include things like mortgage interest, charitable contributions, state and local taxes up to a $10,000 annual limit, and medical costs in some cases.

The list of possible deductions is so long it is impossible for most people to know them all. This is why we use tax software or an accountant to make sure we don’t miss anything important, and we recommend &R Block to do that with.

Lower Your Taxable Income With Deductions

There are some deductions you can take even if you don’t itemize. Many don’t have any income limit, so you can take advantage no matter what tax bracket you fall into.

Other deductions are less standard, and you may be able to take advantage of them as well. Don’t underestimate the value of counting up your deductions!

Lower Your Taxes With Credits

Deductions lower your taxable income. For the average household, $1 in deductions will save you either 12 cents or 22 cents on your taxes. It depends on your income and tax bracket. But credits are even more powerful. Credits lower your tax, not just your taxable income. For every dollar in credits, you get $1 off your taxes.

Below is a list of some universal credits to be aware of. Again, this is not an exhaustive list so you should use a tax program or accountant if you are not confident in your ability to get all of your deductions and credits on your own.

Credits You May Be Able to Take

  • Child Tax Credit — Starting in 2018, every household can take $2,000 per year per dependent child off of your tax bill. Depending on the size of your family, that can add up fast.
  • Low-income credits — The Earned Income Tax Credit (EITC) and Savers Tax Credit are two credits available to people who may be struggling financially due to a low income. The EITC is aimed at working households, and the Savers Credit is designed to motivate those with lower incomes to start saving. If you qualify, take these credits!
  • Education credits — The American Opportunity Credit and Lifetime Learning Credit are two credits available to households to help pay for the cost of education. Both are available to a wide range of households, though income limits apply.
  • Child and Dependent Care Credit — If you pay for daycare for a child or adult dependent so you can go to work, you can usually get a credit for some of those expenses. You can get a credit for up to 35% of qualifying expenses, subject to income limits.
  • Advance Premium Tax Credit — One of the big benefits of the Affordable Care Act is a tax credit for households to help pay for the cost of health insurance. Income limits apply, but this can be a precious credit in some cases. If you know you’ll get it, you can get a discount on your monthly health insurance premium through the Advance Premium Tax Credit (APTC).

Tax Software or an Accountant Can Help

It may take a master’s degree to understand US tax law, but you don’t need one to do your taxes. Many Americans qualify for free tax filing through the IRS Free File program. Those with any income can use Credit Karma Tax for free. And if you want extra help, a human accountant may be the best way to go.

In most cases, tax software and accountants can pay for themselves by finding added tax savings you would not have known about on your own. If you want to maximize your tax return, check out our list of the best options to file your taxes.

The post How to Maximize Your Tax Return appeared first on Investor Junkie.

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Taxes are an essential part of how Americans get access to things like roads, schools, parks, emergency services, and national defense. But that doesn’t mean paying taxes is any fun. You should do your best to minimize your tax bill in any legal way possible. That’s what big companies...