Discover five effective strategies to maximize your tax refund, from leveraging deductions and credits to optimizing contributions and timing. Learn how to navigate tax season smarter for a bigger refund with these expert tips.

5 Ways to Boost Your Tax Refund

Discover five effective strategies to maximize your tax refund, from leveraging deductions and credits to optimizing contributions and timing. Learn how to navigate tax season smarter for a bigger refund with these expert tips.

5 Ways to Boost Your Tax Refund

Here are five effective strategies to minimize your tax bill come tax time, ensuring you don't pay more than necessary and potentially even increasing your tax refund.

Key Points:

Boosting Your Tax Refund

During tax season, individuals often seek methods to minimize their tax burden and potentially increase their tax refunds, despite varying opinions on government spending. These tactics provide alternative approaches to ensure that taxpayers pay only what they owe or even enhance their refunds.

1. Rethink Your Filing Status

The initial choice you make when filling out your tax return, namely selecting a filing status, can significantly impact the amount of your refund, particularly for married individuals. Despite the fact that roughly 96% of married couples choose to file jointly annually, this option may not always be the most advantageous.

In the tax year 2021, the Child Tax Credit has been enhanced under the American Rescue Plan, increasing the per-child credit to either $3,600 or $3,000 based on the child's age, and now covers 17-year-olds as well. Notably, for 2021, the credit is fully refundable. To expedite assistance to families, the IRS will commence distributing advance payments of the 2021 Child Tax Credit starting in July 2021.

Opting for separate tax returns may come with disadvantages, including the potential loss of specific deductions and credits accessible to joint filers. It's crucial to carefully consider these factors to optimize your refund potential. Additionally, both spouses must choose either the standard deduction or itemize their deductions, without the option to mix-and-match between the two returns.

Unmarried taxpayers who have a qualifying dependent may find it beneficial to file as Head of Household, potentially reducing their tax obligations if they meet certain criteria.

2. Take Advantage of Tax Deductions

Numerous deductions are available, some of which you might not even realize qualify for. Overlooking these deductions could result in missing out on potential tax savings. Deductions can significantly impact the amount of your tax refund.

Examples of commonly overlooked deductions include:

For 2021 only:

In 2021, the American Rescue Plan introduces substantial modifications to the Child and Dependent Care Credit, affecting both the eligible expenses and the credit's availability based on income levels. Notably, the plan makes the credit fully refundable for the tax year 2021, allowing individuals to receive it even if they have no tax liability.

For the tax year 2021, the following changes apply to the Child and Dependent Care Credit:

Additionally, the maximum contribution limit for dependent care flexible spending accounts and tax-free employer-provided dependent care benefits is increased from $5,000 to $10,500 for tax year 2021.

Earned Income Credit (EIC)

This credit is designed to assist families with low to moderate income levels, particularly those with children. For tax year 2023, families with three or more qualifying children could be eligible for a credit of up to $7,430, potentially resulting in a refund even if no tax is owed.

State income tax paid on last year’s return

Taxpayers can include the amount paid on their state income tax return from the previous year, in addition to other state and local taxes, for a total deduction of up to $10,000 when itemizing deductions.

Certain jury duty fees

If your employer required you to surrender your jury duty pay to the court while continuing to pay your salary, you can claim the amount handed over as an adjustment to your income.

Medical miles

Subject to an adjusted gross income (AGI) threshold for total medical expenses, each mile driven for medical purposes in 2023 is deductible at a rate of 22 cents per mile. To qualify, unreimbursed medical expenses must exceed 7.5% of your AGI.

Charity miles

Fully deductible at a rate of 14 cents per mile in 2023, individuals can claim miles driven for volunteer work for a charitable organization as a deduction. For instance, driving 50 miles per week to volunteer for a charity would result in an additional deduction of $364 for the year.

Maintaining thorough records for your deductions is crucial, particularly for instances where receipts might not be provided, such as certain charitable contributions or miles driven for charitable or medical purposes. You don't need anything elaborate - a simple spiral notebook kept in your glove compartment suffices. Ensure to record:

Tax Tip: Making contributions to a Traditional IRA can lower your taxable income. You have until the tax filing deadline, unless it's extended due to a weekend or holiday, to open or contribute to a Traditional IRA for the preceding tax year.

3. Optimize your IRA and HSA Contributions

You can open or contribute to a traditional IRA for the prior tax year until the filing deadline, unless it's extended due to a weekend or holiday. This allows you the flexibility to claim the credit on your return, file early, and utilize your refund to establish the account.

Contributions made to a Traditional IRA can effectively lower your taxable income. Taking full advantage of the maximum contribution is beneficial, and individuals aged 50 and above can further enhance their IRA savings through the catch-up provision.

While contributions to a Roth IRA don't result in a deduction, they remain eligible for the valuable Saver's Credit, provided you meet the income eligibility criteria.

For self-employed individuals, the deadline to contribute to certain self-employed retirement plans is extended until October 15, provided you file for an extension. If no extension is filed, the regular filing deadline for the year typically serves as the deadline for most contributions.

Contributions made to a Health Savings Account (HSA) before taxes can likewise reduce your taxable income, and these contributions can be made up until the filing deadline. However, certain criteria must be met to establish and contribute to an HSA:

You are ineligible to participate in an HSA if any of the following conditions apply:

  1. You have other forms of "first-dollar" medical coverage.
  2. You enroll in Medicare.
  3. You are claimed as a dependent on another taxpayer's return.

4. Keep in mind that timing can enhance your tax refund

Being mindful of the calendar can increase the likelihood of receiving a larger tax refund. Seek out opportunities to make payments or contributions before the end of the year that can effectively lower your taxable income. For instance:

Taxpayers who are mindful of the calendar can increase their chances of receiving a larger tax refund by taking advantage of strategic timing. Consider making payments or contributions before the year's end that can effectively reduce your taxable income. Here are some examples:

5. Harness the Power of Tax Credits

Tax credits often yield greater benefits than deductions in enhancing your tax refund since they directly reduce your tax bill by a dollar-for-dollar amount. For instance, if you receive a $100 credit, you effectively reduce your taxes by $100. However, many taxpayers overlook claiming available tax credits, potentially leaving valuable money unclaimed.

The Consolidated Appropriations Act (CAA), enacted on December 27, 2020, as part of pandemic relief efforts, offers provisions for tax year 2020. Taxpayers can utilize their 2019 earned income if it exceeds their 2020 earned income when calculating the Additional Child Tax Credit (ACTC) and the Earned Income Tax Credit (EITC). For tax year 2021, taxpayers have the option to use either their 2021 or 2019 income to maximize the credit.

If you're either a college student or providing support for a child in college, you might qualify for valuable education credits.

Additionally, tax credits for energy-saving home improvements can save you money both throughout the year and at tax time.

Utilizing Vincere Tax, you'll be paired with a tax expert who will handle your taxes from beginning to end, tailored to your specific circumstances.

I hope this information was helpful! If you have any questions, feel free to reach out to us here. I’d be happy to chat with you.

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This post is just for informational purposes and is not meant to be legal, business, or tax advice. Regarding the matters discussed in this post, each individual should consult his or her own attorney, business advisor, or tax advisor. Vincere accepts no responsibility for actions taken in reliance on the information contained in this document.

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