Tips to Boost Your Tax Refund in 2018

Now that tax season is over, did you have to pay taxes instead of getting a refund? You’re definitely not alone, and there will probably be a repeat performance next year.

There are several things you can do to increase your chance for a refund and you don’t have to be a tax accountant to take advantage of these deductions. The key is to start planning now, and not wait until the end of the year. Below is a list of what you should do.

Contribute to a 401K or IRA

Most people think the only reason to contribute to a retirement fund is to ensure financial independence as you age, but it can also have short-term tax benefits. Most of the time the money you put towards your 401K and IRA are tax-deductible and are not included in your taxable income.

Donate to a Charity

Charitable donations or expenses tied to volunteering can all be itemized and deducted from your income at tax time. Just remember to save all receipts and keep track of all the miles you travel on behalf of a charity or the organization you are volunteering for. These miles will be deductible at 14 cents per mile for 2018.

Buy a Primary Residence

There’s a clear tax benefit to owning a home. The interest you pay on your mortgage is all tax deductible. For the first several years, mortgage payments go towards interest, which will radically decrease your adjusted gross income at tax time. Think about paying January 2019′s mortgage payment in December to get the maximum tax benefit in April.

Invest in Solar Energy

If you’re making a list of home improvements, consider adding solar panels to that list. Solar will earn homeowners up to 30% of their installation costs in tax credits. I would hurry because those credits will decrease after 2019.

Claim Education Credits

Student loan interest and/or tuition can be used as a tax deduction. Current students can also access the American Opportunity Credit, which covers up to $2,500 annually for four years, and the Lifetime Learning Credit, which can cover up to $2,000 per tax return.

Start A Home Business

Starting and maintaining a business in your home will give you a new source of income, but more importantly, allow you to take deductions on all income that is generated from the business. These specific deductions may include business expenses, portions of your mortgage, utilities, repairs, and even the startup costs for the business.

Medical or Dental Expenses

Many of your medical and dental expenses are tax-deductible as is the transportation and parking costs.

Open a Flexible Spending Plan

Many employers offer flexible spending plans that will let their employees contribute towards their annual medical expenses. These medical contributions generally do not count towards taxable income.

Job Hunting

If you find yourself in the hunt for a new job this coming year, remember you can write off some of the expenses associated with finding new employment. These write-offs include clothing, travel, food, etc. And, these expenses are deductible even if employment is not found within the tax year.

Make Estimated Payments

As is often said, the best defense is a good offense. If you’re concerned that your deductions will not cover you appropriately for the tax year, it will be advantageous to make quarterly payments that you and your tax accountant think will cover your income that is not subject to withholding tax.

Start a Family

Child tax credits are still included in the new tax reform bill. In fact, they have been increased from $1,000 per child to $2,000.

Find Every Available Tax Credit

We’ve named many tax credits in this article, but there are many more that can be utilized. Some of these include childcare costs for low-income households and adoption. Keep in mind that tax credits are more valued than simple deductions because they can reduce your taxable income on a dollar-for-dollar basis.

The tax Cuts and Jobs Act of 2017 that was signed into law in December provided a major overhaul to the previous tax law. This law will affect your tax planning for 2018 so it will be important to have a pro do your taxes. No matter how much you think you know or how much research you do, a professional will be able to identify those tax deductions and tax credits that will be beneficial to you. A professional will also help you stay organized and minimize your tax obligation.

The Secret Legacy Behind “Buy Term and Invest the Difference”

In 1965, A.L. Williams died of a heart attack. He had a whole life policy, but it left the remaining Williams clan underinsured. This left an impression on his son, Art L. Williams, Jr, whose cousin later introduced him to the concept of term life insurance, which was relatively unknown at the time and provided much more in face value at cheaper rates.

Fueled by the financial hardship his family had endured, Art launched himself into an ambassadorship of term life with an almost religious fervor. He coined the phrase “Buy term and invest the difference”, BTID for short, launched a new company on the concept, had some 200k agents under his umbrella, and the rest is history.

Or is it?

Some 40 years later, a study published in the May 2015 issue of Journal of Financial Service Professionals indicates that Williams’s grand experiment had unintended consequences for families. “People don’t buy term and invest the difference”, said David F. Babbel, the study’s co-author. “They most likely rent the term, lapse it, and spend the difference”, leaving many families uninsured instead of simply underinsured when a loved one passes.

Even the small percentage of people who do fully execute Art’s advice and invest the difference may invest emotionally in the market by buying high and selling low, or buy managed investments without realizing the potential impact of associated fees to their nest egg. People who think they are playing it safe by overfunding a 401k beyond the amount an employer matches often don’t consider that, if the management fee is 3%, they must make a 3% return each and every year to break even and protect their principle.

Supposing everyone who bought term actually did invest the difference wisely, whole life still offers advantages that BTID doesn’t. Whole life locks in insurability, allowing the insured to purchase additional coverage with accumulated cash value, even if their health has declined to the point that they are no longer able to buy new policies. Further, they can borrow against the cash value, convert it into guaranteed income, or take tax-free distributions.

Chris Blunt, executive vice president of New York Life, points out the value of BTID to the investment firms, says “Generations of Wall Street professionals have been trained by their firms to trash cash value life insurance so the investment firms could maintain those dollars under management.” He also points out that there’s no need to decide between term and permanent life insurance. Young families can purchase both, and convert the term to whole life as their income increases.

Art Williams’ legacy consists of overpriced term-only options and a drastically reduced pool of agents who, like the Wall Streeters mentioned by Mr. Blunt, push only one product and openly disparage every other option available to their prospects, calling cash value insurance “trash value” and an “awful product” and touting BTID as the only solution for everyone. The 40-year look back on this way of selling life insurance detailed in this study doesn’t support these claims. America’s families deserve more in terms of both options and advice.