Supporting a family while living paycheck to paycheck is already daunting. You’re living with a fiscal sword of Damocles swinging over your head, waiting for the emergency or unexpected expense that will cut it loose. That anxiety can get even worse during tax season.
What can you possibly do to ensure your family saves as much money as possible — or even gets some money back?
Read More: 15 Commonly Missed Tax Deductions You Can Take Advantage Of
For You: 5 Signs You’re Losing Money Every Month — and How To Find the Leaks
Fortunately, you have more options than you might think. With the right preparation and planning, you can make smart moves that protect your family and potentially improve your financial position this tax season.
1. Make Sure You Claim Refundable Tax Credits
These tax credits can be a big win for families on tight budgets because they can produce refunds — even if you owe little or no federal income tax.
Whether you have the resources to consult an accountant, access free or discounted help from tax preparers in your community, or have time to research online, you should be aware of several credits:
Earned Income Tax Credit (EITC): The EITC is a refundable federal tax credit for low- to moderate-income working individuals and families, particularly those with children. It reduces the tax you owe and may provide a refund.
Child Tax Credit: The Child Tax Credit helps families with qualifying children under age 17 reduce their tax bill and, depending on eligibility, may provide a partial refund.
Child and Dependent Care Credit: This credit helps offset child care expenses, such as day care or babysitting, that allow parents to work or look for work.
If you qualify, these credits alone can make a huge difference — and they’re absolutely worth investigating before you file.
2. Adjust Your Withholding for Better Cash Flow
The siren song of a big tax refund is hard to resist. Unfortunately, just like the sirens of old tales didn’t have sailors’ best interests at heart, getting a huge refund isn’t always the windfall it seems to be.
It may actually mean you’ve been giving the government an interest-free loan throughout the year, when you don’t have a ton of money to spare.
To reduce your reliance on that once-a-year refund and improve your cash flow year-round, consider submitting a new W-4 to your employer that adjusts your withholding and increases your take-home pay each paycheck. Just be careful not to overdo it — you don’t want to end up owing taxes, either.
3. Contribute to a Retirement Plan
When you’re living paycheck to paycheck, you’re often too focused on getting through the day-to-day to seriously consider retirement. But you don’t have to forgo planning for your future just to get through today.
It’s time to look into a hidden gem of a tax credit.
Commonly known as the Saver’s Credit, the Retirement Savings Contributions Credit is a federal nonrefundable tax credit that encourages low- and moderate-income taxpayers to put money away for retirement.
How does it work? The Saver’s Credit can reduce your income tax liability if you make eligible contributions to qualified retirement plans or individual retirement accounts (IRAs).
It’s especially important to take advantage of this credit if your employer offers a 401(k) match. Even a small contribution to your 401(k) can help you qualify for the Saver’s Credit while also letting you take advantage of what is essentially “free money” from your employer.
If there’s one thing families living paycheck to paycheck don’t want to do, it’s leave money on the table.
4. Deduct Student Loan Interest
Student loan debt can be a dark cloud over many people’s finances — especially for families already struggling to cover essentials.
There is at least one silver lining when it comes to your taxes: Eligible borrowers can deduct up to $2,500 in student loan interest paid during the year, even if they take the standard deduction. This deduction is taken as an adjustment to income, so itemizing isn’t required.
Take the wins where you can.
5. Track Your Side Hustle Income and Expenses
When you’re doing financial gymnastics to make ends meet every month, a side hustle can be a true lifesaver. Whether you’re driving for Lyft, pet-sitting in your community or selling goods on Etsy, that extra income can make a huge difference — even if it doesn’t seem like a lot of money to other people.
It also makes a difference to the Internal Revenue Service.
Though you’re not giving Beyoncé a run for her money in personal wealth, you still need to report all side-hustle income or risk penalties.
You should also look at deductions that can benefit freelancers, such as business mileage, supplies, home office expenses (if eligible), and software related to your work. Tracking these expenses throughout the year can help reduce the taxes you owe.
6. Find Low-Cost Ways To File Your Taxes
One of the last things you want right now is to pay a lot of money to file your taxes. Fortunately, there are options that can help ease the burden for families on a tight budget:
-
IRS Direct File: A free filing tool offered by the IRS for eligible taxpayers in participating states.
-
IRS Free File: A partnership between the IRS and tax software providers that offers free guided tax preparation for eligible taxpayers.
-
Volunteer Income Tax Assistance (VITA): A program that provides free in-person tax preparation for people who generally earn $64,000 or less, as well as people with disabilities and limited English-speaking taxpayers.
These services can be a huge help to lower-income taxpayers, and checking whether you’re eligible could save you both money and stress.
The Bottom Line
Tax season can be nerve-wracking for many people, but the pressure is compounded for families on a tight budget.
Living paycheck to paycheck isn’t easy. However, taking advantage of available credits, deductions and free filing resources may help reduce your tax burden — and potentially put more money back in your family’s pocket.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal, or tax advice.
More From MoneyLion:
