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5 Ways to Get a Bigger Tax Refund This Year

Reducing your tax burden doesn't have to be complicated with these strategies

Closeup of hands with tax form
By Barbara Weltman

Knowing what you're entitled to write off on your tax return might seem complex and mysterious, but it doesn't have to be. This year, popular write-offs include deductions for alimony payments, moving expenses (if the move is related to a job relocation or self-employment) and IRA and health savings account contributions. Tax credits include the dependent care credit for child care costs (if you work), education costs (including tuition and fees), retirement contributions to IRAs or 401(k)s and the earned income tax credit for low-income tax payers. Student loan interest can be deducted up to $2,500 annually, and if you itemize deductions, mortgage interest and real estate taxes as well as state and local income taxes or sales taxes can be added to that list.

Ready to dive in deeper? Here are five more easy ways to pay fewer taxes:

1. Check for ordinary losses on stock losers.

Last year was a great year for the stock market, but not every investment was a winner. Ordinarily losses on the sale of stock are deductible as capital losses. These losses can offset capital gains (including capital gain distributions from mutual funds) as well as up to $3,000 of ordinary income ($1,500 for married persons filing separately).

But you may be able to obtain even better tax results if the stock was in your own corporation or another closely held corporation that meets the requirements to be treated as "Section 1244 stock." That means if you invested in your brother-in-law's business that meets the Section 1244 requirements and it failed, causing you to dump the stock for pennies on the dollar or you simply walked away, then you can deduct up to $100,000 of losses as ordinary losses on a joint return ($50,000 for singles). Losses in excess of this dollar limit are treated as capital losses subject to the limits above. (IRS Publication 550 spells out the details of this rule.)

2. Check for worthless securities.

Unfortunately not all investments work out; some corporations -- public or closely held -- go belly up, leaving investors with worthless stock and other securities. If you have a security that's become worthless, you can deduct your loss.
You're treated as having sold the security on the last day of the year in which it became worthless.

You have seven years from the year in which worthlessness occurred to file a refund claim, so look for securities you owned that became worthless in 2006 or later so you can file a refund claim before April 15, 2014.

Caution: The stock must be completely worthless. The fact that a company declares bankruptcy does not mean its stock is worthless. Remember that Kodak filed for bankruptcy protection in 2012 and all looked hopeless, but Kodak emerged from bankruptcy and its stock was relisted on the New York Stock Exchange in November.

3. Pay no tax on gain from your home sale.

Did you sell your home in 2013? If you owned and used it as your principal residence for two of the five years preceding the date of sale, then you can exclude from income the gain up to $250,000, or $500,000 on a joint return. If you bought your home a long time ago and had a large gain, you may still use this shelter to avoid paying any tax on the sale by correctly figuring your tax basis and gain realized.

Gain is the difference between the amount realized (the selling price less broker's commissions) and your tax basis. Tax basis is the original cost of the home increased by capital improvements you made to it over the year. Capital improvements include a new roof, an addition, fencing, a new alarm system or even new appliances. IRS Publication 523 gives an overview of this rule.

Caution: If you took a home energy tax credit in past years for adding insulation, storm windows, or solar panels, then you must reduce your basis for these capital improvements by the amount of the credit.

4. Deduct your out-of-pocket costs for charity.

If you do volunteer work for a nonprofit organization and itemize your personal deductions, then you can write off the expenses you incur. For example, if you deliver meals on wheels in your car, you can deduct your costs at the rate of 14 cents per mile (provided you have a record of this driving).

If you buy items on behalf of a charity, then you can deduct these costs as long as you correctly substantiate your costs. Receipts aren't enough if the costs are $250 or more. In this case, you need a written acknowledgment from the charity.

Note: You can never deduct the value of your time and effort expended on behalf of a charity. IRS Publication 526 contains more details about the ins and outs of this approach.

5. Make smart tax elections.

The tax law has many elections that allow you to choose the most beneficial way to handle certain tax items. For example, if you suffered a casualty loss in a FEMA-declared disaster in 2013, you can opt to deduct the loss on an amended return for 2012. Or, if you'd get a bigger write-off in 2013 because your adjusted gross income (the threshold for claiming this deduction) is smaller, simply claim your loss on the 2013 return. FEMA disaster declarations are listed at www.fema.gov/disasters. If you sold property on an installment basis, then you can choose to report it all on your 2013 return rather than spreading the gain over the years in which installment payments are received. This choice makes sense if you have losses now to offset the gains.

If you prepare your own return, your tax software should ask questions to help you chose the most favorable option; tax pros should do the same.

Keep in mind that the IRS won't voluntarily send you a refund; you must file a return showing why you're entitled to it. To hold onto more of your hard-earned money, take the time to see what you might be missing by considering the strategies that apply to your own life.

Barbara Weltman is an attorney, advocate for small businesses and entrepreneurs and the publisher of Idea of the Day and the monthly e-newsletter "Big Ideas for Small Business" at www.barbaraweltman.com. You can follow her on Twitter @BarbaraWeltman.

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April 06 2014 at 6:49 PM Report abuse -2 rate up rate down Reply

The very first thing you should do is start your own business. Does not have to be full time, but has to show "effort"--but not necessary to "show a profit" for five years.

Then allocate the expenses properly to be able to deduct depreciation of assets and deductions of the expenses of making sales, buying new computers and software and attainng mroe education to make it profitable. Do this while still employed somewhere else , if possible, but you have five years to show a profit in the meantime.

April 06 2014 at 4:52 PM Report abuse rate up rate down Reply

Heck, just do like the illegals do. File many times and claim dozens of kids. It's worked for them for the last few years.

April 06 2014 at 4:19 PM Report abuse rate up rate down Reply
1 reply to papajokr's comment

Typical Tea Bagger -- Constant crazy accusations and never any specifics. You are an ignorant dupe for Fox News

April 06 2014 at 8:45 PM Report abuse rate up rate down Reply

Hello, if you want to donate a personal property item such as a valuable T.V., antique, collectible, art or and single item valued at more than $500 for a single item or $5,000 or more for a group personal property items you will have to have an appraisal by a qualified appraiser an file IRS form 8283. The IRS does not tell you this and you are supposed to find out for yourself if you do not you lose the write off and you cannot refile. Try to donate them to one place to save you paperwork time and money and make sure the Charitable organization is a 501(c) 3, and you get a dated by them receipt very important! Tell them to leave the total amount blank so you can have it valued. I can do this online for you just Google me Alan C. Ransdell & Associates and contact me on my website thank you, Alan.

April 06 2014 at 1:10 PM Report abuse rate up rate down Reply

you should mot be getting a tax refund at all ------your loaning the goverment money and getting absolutely nothing for it ! ----adjust your withholding so you come as close to zero as possible

April 06 2014 at 12:53 PM Report abuse +2 rate up rate down Reply
1 reply to kevine80's comment

And if everyone acted responsibly, we would not need Social Security. The tax refund is an easy way to save money and with interest rates below 1%, its not much of a loss

April 06 2014 at 4:52 PM Report abuse rate up rate down Reply

All The Rich need a big Audit because I think there is a lot of Cheating and Hiding from paying Taxes that goes on no Wonder The United States Is Broke and Worthless.

April 06 2014 at 10:54 AM Report abuse +1 rate up rate down Reply

The Dems approved a tax increase of 53% on estate taxes. A sixth way to get a bigger return is throw the lying bums out.

April 06 2014 at 9:42 AM Report abuse -1 rate up rate down Reply
1 reply to bobpjafe's comment

Let's hope that your estate taxes are filed real soon....

April 06 2014 at 8:47 PM Report abuse +1 rate up rate down Reply

he is already being audited with washington state labor and indudstries... aka investigation... all i did was submit recordings of employee hours. when i submitted those documents he had not claimed an employee in two years. i also provided cash bank receipts for the deposits he made on others' behalf. and then there's the numberous times he left cash under the door mat in an envolope or just had them show up at the door for their cash. these men just by appearence scare me. he doesn't hire the best that's for sure. and if one of these hoodlems he hires gets fired well now they know where we live!

January 30 2014 at 5:54 AM Report abuse -3 rate up rate down Reply
Brian Workman

5 ways to get a quicker/bigger audit!?!?

January 29 2014 at 11:39 PM Report abuse rate up rate down Reply

i recorded that comment (as he has said it countless times) and submitted it to washington state labor and industries along with other documentation of his cheating.

January 29 2014 at 10:01 PM Report abuse -2 rate up rate down Reply