This year so far, the average tax refund is being reported as 11% lower than last year. According to the IRS, Americans got an average of $3,473 last year compared to $3.079 this year. There are a few factors that are causing refunds to be lower this year. Programs put in place due to the pandemic have ended, in particular the extended child tax credit and stimulus checks have expired. A few other pandemic era tax programs have ended as well.
💡 Fun Facts…
| 1) The costs of the Civil War prompted income taxes (1861) |
| 2) The average American pays just under $17,000 in Federal income taxes |
| 3) It’s estimated the average citizen will pay over $500,000 in taxes in their lifetime |
Ways To Lower Your Taxes
When you contribute to a retirement account, you can lower your income tax. The most common investment accounts are a 401(k) or IRA. When you contribute to a retirement account, it’s made with pre-tax dollars, so your taxable income is reduced which will lower the amount of taxes you owe. Tax credits can also help lower your taxes if you are lower or middle income earners. Examples include the Child Care Tax Credit, Earned Income Tax Credit and American Opportunity Tax Credit. Just make sure you’re eligible before claiming.
Charitable contributions are also tax deductible. Not only are you helping a worthy cause, but you can apply these contributions to lower your taxable income. If you have a business of any kind, you may be able to deduct business expenses including supplies, travel, home office and others. Make sure to keep accurate records that prove that these expenses were directly related to running your business. Health Savings Accounts (HSA) are funded with pre-tax dollars, so they reduce your income tax. These funds can be used to pay for a variety of medical expenses such as doctor co-pays, prescriptions and deductibles.
Best Ways To Calculate Your Taxes
The best and most accurate way to file your taxes is using tax software, some of which are free. The most popular programs are TurboTax, H&R Block and TaxAct. They will walk you through the process step by step and may even find you deductions you might miss on your own.
If your taxes are more complicated or you’re not comfortable using tax software, you can work with a tax professional, such as H&R Block, Jackson Hewitt or a Certified Public Accountant (CPA). They will help you maximize your potential refund and make sure your taxes are accurate, as well as provide tax planning advice.
Always double check your work, to make sure what you’re reporting is accurate. If you ever get audited, you’ll need to prove all the income and deductions that you claimed.
If you have a more complicated tax situation or don’t feel confident using tax software, it may be worth consulting a tax professional. Certified Public Accountants (CPAs) and Enrolled Agents (EAs) are trained to prepare tax returns and can help you maximize your deductions and credits.
A tax professional can also provide guidance on tax planning, helping you make strategic financial decisions throughout the year that will minimize your tax liability come tax time.
OPINION
There’s no avoiding taxes! However, you can make sure you pay the least and get the maximum refund by consulting with a professional. They often know the best ways to file your taxes to reduce how much you owe and maximize your refund, if you’re eligible. You don’t have to go to an accountant, who are typically higher priced, but use cheaper services like H&R Block and Jackson Hewitt. If you’re an experienced tax filer, great, do it yourself. The tax laws continue to get more complicated and in these times of high taxes, you want to get the most of your income.
