Tax time brings many a feeling of dread, and yet, it can also be an opportunity to score an extra chunk of money. For some, that amount is the needed down payment for the car of their dreams, which is why this year you should look at all the ways you may be able to maximize your returns.
Top Tips for Maximizing Your Tax Return
Each year you have a new opportunity to get the “most” money back on your taxes. Instead of just reading the tips this year, put them into action. Here are some of the quickest and easiest ways to get money back:
- Use that earned income tax credit – If you have moderate to low income and are working or self-employed, you may quality for a boost with the earned income tax credit. The basic requirements are a valid social security number, legal resident status, not be claimed as a dependent, have a qualifying child and be between 25 and 65.
- Use the dependent care credit – The child and dependent care credit works by looking at the amount you paid for care for a dependent. Dependents can be children or adults requiring care. The IRS lists the guidelines around using the dependent care credit on their website.
- Find and use current tax credits – There are a lot of small deductions, credits and tax codes out there that can help you maximize your returns. For example, if you did any energy efficient upgrades on your home, you may be able to earn tax credits. Same goes for buying energy efficient vehicles. Keep an eye on what tax credits you may be able to receive.
Secrets of Tax Professionals
Some tax tips are fairly straightforward, but the professionals have a few hidden secrets up their sleeves. Here are some tips that may not be as well-known:
- Rethink your filing status – If you’re married, you may go straight for the joint return. That’s not always the most profitable route. If you’re unsure of which will benefit you more, try doing your tax returns both ways—as a couple and as single filers. Programs like TurboTax can help you do this easily. Once you see both pictures, you’ll know which route is better for you.
- Embrace deductions – There are far more deductions than you thought possible, like moving, charitable contributions (including donations) and expenses while looking for work. Go research and find lists of deductions to consider that also tell you what you’ll need to support your claim.
The Car of Your Dreams
Let’s say you did it—you managed to get a nice chunk of money back this April. What now? The car of your dreams is waiting. No, that doesn’t mean the Ferrari you had your eye on, but a reliable used vehicle that is fun and has the features you want and need.
If you want to put your tax refund toward a down payment, there are some steps you should take before making the purchase. The first is to get realistic. Look at all of the factors combined. This means your budget, the total amount you’re willing to put down, your credit score and what vehicles will be within your range.
The credit score is the first piece. If it’s really low, you may want to take a few months to improve it. Hold that money from your tax return aside (yes, it will be a challenge, but worth it). Next, look at how much you can afford to pay each month total to own and operate a car, truck or SUV. Think about car payment, gas, insurance, maintenance and a repair fund. Add all of those things together to come up with a number. For example:
- Car payment - $225
- Insurance - $85
- Gas - $75
- Maintenance and repair fund - $50
That puts the monthly total for a car at $435. If that’s too much, adjust until the car payments and other expenses don’t total more than you can handle.
Once you have your car payment amount, then identify how much you can put down (how much is your tax return?). Take all of those numbers to a good dealership, and they’ll help you with the rest. They’ll let you know how much that gives you to spend in total, because remember, there will be interest and tax and license fees. Once you have the amount, you can look to see what dream cars are within that range.
Taxes shouldn’t be scary. A refund may be the key to you getting into a new car. This year, do everything possible to get the most from your tax returns so you can get the car of your dreams.
