As tax season approaches, many taxpayers look for ways to maximize their refund. In reality, they should want to receive little to no refund. After all, a tax refund means that your tax liability was less than the amount that you paid.

The ultimate objective of seeking a tax refund is to demonstrate that you have a lower tax liability. This is best achieved through proper tax planning. It’s a long-term strategy that should be planned and modified throughout the year, and not just in April when you file your taxes.

What Tax Planning Can Do For You

Generally, tax benefits are widely known and publicly available. By reviewing this data and strategizing, you’ll enter tax season with a clear understanding of the following:

Available Tax Benefits

You will know what specific tax credits, deductions, and incentives you qualify for. This knowledge allows you to maximize your tax savings and ensure you take full advantage of available opportunities.

Estimated Tax Liability

You’ll have a good estimate of your total tax liability for the year. This information enables you to plan accordingly, ensuring that you set aside enough funds to cover your taxes and avoid any surprises when filing.

Projected Take-Home Pay

You will also understand what your take-home pay will be for each pay period. This insight helps you budget effectively, allowing you to manage your finances better throughout the year while considering any adjustments needed based on your tax situation.

Knowing this info in advance is not only empowering, it can results in savings in the hundreds, if not thousands each year.

Getting Started With Tax Planning

These essential tips can help you minimize your tax liability and maximize your take-home pay.

Adjust Your Withholding

Start by reviewing your Form W-4, which determines how much tax is withheld from your paycheck. If you consistently receive a large refund, consider adjusting your withholding to keep more of your money throughout the year. The IRS Withholding Estimator can help you determine the right amount to withhold based on your financial situation.

Max Out Tax-Advantaged Accounts

Contributing to tax-advantaged accounts like IRAs and 401(k)s can lower your taxable income. If you’re eligible, make the maximum contribution to these accounts before the filing deadline. Similarly, if you have a Health Savings Account (HSA), contributing can not only reduce your taxable income but also allow your savings to grow tax-free.

Claim Eligible Tax Credits

Tax credits can directly increase your refund. Research and ensure you’re claiming credits you qualify for, such as the Earned Income Tax Credit (EITC) or the Child Tax Credit. These credits can significantly impact your refund and provide substantial financial relief.

Track Deductible Expenses

Keep a detailed record of expenses that may be deductible. If you’re self-employed, track business expenses diligently. Even personal expenses like charitable donations or medical costs might qualify. Organizing these records throughout the year makes it easier to itemize deductions if you choose that route.

Consider Tax-Loss Harvesting

For those with taxable investments, tax-loss harvesting can be beneficial. Selling investments that have lost value can offset gains from other investments, reducing your taxable income. This strategy not only helps with tax liability but can also provide a clearer financial picture.

Utilize Employer Benefits

Take full advantage of employer-sponsored benefits like Flexible Spending Accounts (FSAs) or Dependent Care Assistance Programs. Contributions to these accounts are made pre-tax, reducing your taxable income and, consequently, your tax bill.

Stay Updated on Tax Laws

Tax laws change frequently, and new deductions or credits can be introduced. Keep an eye on IRS announcements and consult a tax professional if needed to ensure you’re aware of any changes that could impact your refund.