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How to Turn This Year's Tax Refund Into Bigger Tax Savings Next Year

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business man holding income tax ...
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Tax season is upon us. Perhaps filing your taxes was a painless process that you finished over a month ago. Or maybe the mere mention of "filing" and "taxes" causes a strange gagging sensation in the back of your throat. But whether you love tax time (accountants) or hate it (everybody else), there's no avoiding it. Fortunately, for many of us there's a silver lining to all the blood, sweat and tears -- the tax refund.

It's strange, because the tax refund feels like free money from the government, although the reality is it's money you worked hard to earn last year. Yet it still feels pretty amazing to get a fat check with your name on it, regardless of where it came from. But what if you could use that money to get an even bigger refund next year? Well, you can. And here are a few ways to do it:

Buy a house. Well, only if it makes sense. If you're planning to buy or sell a home in 2014, don't miss out on the deductions just begging for your attention.
Property taxes and the interest you pay on your mortgage are just a couple of deductions to look for. And if you're selling? The profit you make on your home is tax-free.

Invest in your child's education. Whether you've got a screaming toddler or a bright-eyed college freshman, tax benefits are at the ready for you. Tuition, fees and loans are all eligible for deduction by current students (or their parents). And if you have a toddling 1-year-old like we do, your state likely offers a deduction for the contributions you put toward a 529 plan.

Have a baby. If you're planning to add to your brood this year, you'll be able to claim a $3,900 exemption (as of 2013) per child. And to think my parents said I had to earn my keep when I was growing up. With an exemption like that, I think I was earning it just fine. (Just kidding, Mom.) There's also a Child Tax Credit of up to $1,000 per child which many also qualify for.

Donate to charity. If you're on the fence about giving away your collection of Hawaiian button-downs, do the right thing and burn them. But if you have anything else you want to donate, including straight cash donations to your favorite charities or churches, don't forget to keep track so you can deduct that amount at the end of the year.

Open a traditional IRA. The benefits of retirement savings aren't all reserved for your 65th birthday. Consider donating up to $5,500/year to an IRA, and you may be able to deduct the amount from your taxable income. If you're filing jointly, you and your spouse can each donate $5,500, for a potential deduction of $11,000.

So when that tax refund arrives at your doorstep this year (or perhaps it already has), see what it can do for you. And come tax season next year, maybe your gag reflex won't be so strong.

Joanna and Johnny are the writing duo behind OurFreakingBudget.com, a personal finance blog documenting the joys, pains and realities of living on a budget.


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alfredschrader

I just invented Facepad. It's quicker and easier than Facebook.

March 11 2014 at 2:10 PM Report abuse rate up rate down Reply