We know that taxes can be a stressful time of year. But what if we told you that we know how to get a bigger tax refund?
If you’re looking for some tips on how to maximize your deductions and take advantage of the credits available, then keep reading because we have just the thing!
In this guide, we’ll give you our top tips for how to get a bigger tax refund and keep more money in your pocket this April 15th. Let’s dive in!
How to Get a Bigger Tax Refund
The government pays tax refunds in several ways, either by sending a physical paper check or via a direct funds transfer to your bank account. You’ll qualify for a refund if you withheld more money than needed or paid extra estimated tax payments than what you were liable for in your tax payment.
In order to receive a tax refund, you must file a tax return claiming the refund amount and it must be filed within three years of the return’s due date.
1. Choose the Ideal Filing Status
The first (and best) thing you can do is to make sure you’re choosing the ideal filing status. For some, this is simple – for others, it can be a bit more complicated.
The various filing statuses offer differing income brackets for which certain tax rates apply.
Choosing the right one for you can enable you to have your income taxed at different rates. For instance, if you are raising a child or dependent, filing as a head of household will offer you a much higher standard deduction. It’s a good idea to meet with a personal finance professional to find out which option is best for your situation.
2. Consider the Earned Income Tax Credit
High earners, you’re out of luck – this tax credit is not for you.
However, if you are a low- or middle-income taxpayer, you may be able to qualify for the earned income tax credit. It can be as much as several thousand dollars, so it’s important to research whether you might qualify for this benefit.
Your income must fall within certain limits (these limits vary depending on the tax year as well as the size of your family, so check in on this).
3. Don’t Forget the Child Tax Credit
This tax credit is another important one to check out. You may qualify for roughly $2,000 in tax credits (that’s per child, too, so a major windfall for parents of multiples!). There are certain income limits but these vary and the cap is quite high before the credit phases out.
4. Itemized Deductions vs. Standard Deductions
Claiming the standard deduction is the simplest way to file your taxes but if you itemize them, you may be able to find even more eligible deductions to reduce the tax bill.
This does vary, though, and recent tax reforms have dramatically increased the size of the standard deduction. Because of this, for many people, the standard deduction remains the quickest way to get a large refund – check with a tax professional to find out the best option for your financial situation.
5. American Opportunity Tax Credit
With the American Opportunity Tax Credit, you can claim the first $2,000 of college expenses against your tax bill for the first four years of an undergraduate education – plus 25% of the next $2,000. That means you can earn up to $2,500 per year or $10,000 per year total over the course of a full undergraduate education. There are income limits on this tax credit, too, but claiming it can get you a larger refund in most cases.
6. Tax That Was Already Withheld
Whatever you do, don’t not take credit for money you already had withheld for taxes. There are some situations in which you may have held taxes withheld and you can claim these the following year.
You can see whether that is the case by looking at Form 1099-R – you’ll get this form from whoever paid out the benefits, as there is a box that must be checked.
7. Health Savings and Retirement Accounts
If you paid into a health savings or retirement account, that’s another way you can prevent a teeny-tiny tax refund.
Both traditional IRA and 401(k) contributions along with health savings accounts offer tax benefits and can reduce your taxable income – in most cases, you can contribute after the year has ended and still receive the benefit on your taxes.
Of course, you’ll have to spend money in order to contribute money to those accounts – but you’ll get way more bang for your buck this way.
8. Student Loan Interest
There are a couple of different ways you can deduct student loan interest. One is if your parents are paying the interest on student loans in your name – this can be claimed because it’s viewed as a gift from your parents. If your parents do not claim you as a dependent, you can deduct up to $2,500 of student loan interest.
You can also deduct student loan interest that you paid directly – again, up to $2,500. This cannot be claimed if you are married and don’t file jointly.
9. Defer This Year’s Taxable Income to Next Year
You might not have a ton of control over your income, but if you do and can shift some income into the following year, it could help to defer some of this year’s tax burden into next year.
This only applies when tax rates are approximately the same between each tax year – future tax hikes might affect how well this works on tax returns.
10. Don’t Withdraw From Your Retirement Account
We already talked about how contributing to a retirement account can reduce your overall tax burden – and along those lines, it’s also important that you avoid taking money out of retirement accounts. Tax-deferred growth is only available as long as the funds are still sitting in the account. You’ll get a tax bill as soon as you start taking withdrawals.
11. Research All Other Deductions and Credits
There are plenty of other tax deductions and tax credits you can take on your tax return in addition to those we mentioned above (like the ones for student loans, retirement accounts, and health savings accounts). Here are some of the best.
Did you have to travel away from home for work? If so, you may be able to deduct related expenses, including those for transportation, food, and lodging.
If you made any donations to qualified charitable donations, be sure to keep the receipts. you may be able to deduct these.
Qualified Education Expenses
You can often deduct up to $4,000 worth of eligible higher education expenses, either for yourself, a spouse, or a dependent.
Casualty, Disaster, or Theft Losses
These deductions are less common, but if you had any losses or damages to your home, vehicles, or household items from a disaster declared by the president, you may be able to claim some tax relief. An example would be hurricane damage.
What if I File My Taxes Late?
You should always file a tax return, even if you technically don’t have to based on your income. If not, you may be leaving money on the table.
And what if you file late?
Try to avoid this. If you do, you could be subjected to interest and penalties, especially if you owe money on your tax return rather than being eligible for a refund. You will have to pay 5% of our unpaid taxes over a maximum of five months – and if you owe a lot, that can add up rapidly.
Even if you can’t afford to pay the full amount, pay some as soon as possible to reduce hefty fees.
Final Thoughts: Maximize Your Tax Refund
There are plenty of ways you can get a bigger tax refund (or pay fewer income taxes). Be sure to rethink your filing status and embrace any tax deductions or tax credits you might be eligible for.
Maximize your contributions to retirement savings plans and remember that timing is everything when it comes to filing your income taxes- and raking in a larger refund.
There is also one additional thing worth considering if you’re looking to maximize your return. While you can definitely do your taxes on your own, a solid tax prep service could help make sure you find every deduction and credit possible. Some well-known options like TurboTax could be worth checking into if you’d like assistance with your taxes.
Of course, getting a larger tax refund isn’t the only way to keep more money in your pocket – rather than relying on a tax refund (it’s free money you didn’t anticipate, right?) you may just want to increase the salary you earn throughout the year. Yes, that will increase the amount of taxes withheld – but a tax refund is technically your money coming back to you, anyway. You’re waiting for the IRS to pay you back!
Instead, reap the rewards by earning more money without having to wait on the IRS to repay your interest-free loan to them.
That said, there’s nothing wrong with wanting a bigger tax refund, either. So, follow the tips and steps listed above and make sure you’re getting the biggest tax refund you can!