Most Americans have varying opinions on how the government uses tax dollars. However, many of us are searching for ways to avoid paying more than what we owe and receive larger refunds after filing taxes. If you want to boost your tax return, here are some strategies you should keep in mind.
Reconsider Your Tax Filing Status
One of the most important decisions you need to make when filing your taxes is choosing a filing status. Your status can affect the size of your refund, particularly if you’re married. Almost all (96%) of married couples filing jointly, but a joint return may not always be the best choice. While it does take more effort for married couples to file separately, you can save on your taxes under certain conditions. For instance, if one spouse has several medical bills from the previous year, the couple may be able to enjoy a bigger deduction.
Married couples who file separately are also eligible for the Child Tax Credit. The credit was $2,000 per child under the age of 17 in 2020. Separate filers must have an adjusted gross income of less than $200,000, and joint filers must have a gross income of less than $400,000.
Take Advantage of Tax Deductions
There are several common tax deductions you may not know about, and some of these deductions are often overlooked. Find out which deductions you’re eligible for so you can receive a larger tax refund. You can use tax preparation software to get an estimate on your return, including deductions like state sales tax and charitable contributions you’ve made throughout the year. You should also check on reinvested dividends, which aren’t technically deductions but can lower your tax liability.
It’s also a good idea to make your mortgage payments early if possible to get the added interest for a deduction from your mortgage interest. In addition, don’t forget to schedule doctor exams and treatments near the end of the year as well as you can increase the likelihood of receiving a medical expense deduction. Finally, if you’re using a home office space, deductions for office equipment or for the cost of painting the office will increase your chances of getting a bigger tax return.
Be sure to check student loan interest and how it can affect your deductions as well. Even if you didn’t pay the loans yourself, you could still take the deduction as long as you are the one obligated to repay the loan. New tax guidelines state that if someone else pays the loan for you, the IRS will classify this as though you were given a monetary gift to pay off your loan.
Make the Most of your HSA and IRA Contributions
You can open or contribute to your traditional IRA for the previous tax year until the tax filing deadline. This means you can claim the tax credit on your return, file your taxes early, and use the money from your refund to open your retirement account.
IRA contributions can lower your taxable income. Use the maximum contribution. If you’re at least 50 years of age, catch-up provisions can enhance your IRA. You can’t receive deductions from a Roth IRA, but you’ll still be eligible for Saver’s Credit if you meet the income qualifications.
The deadline to contribute to some self-employed retirement plans is October 15, 2021, but only if you file an extension in a timely fashion. If you don’t file for a filing extension, you’ll have to meet the regular filing deadline to take advantage of most contributions.
While you should take all these factors into account when increasing the amount of your tax return. However, timing is an important factor as well. Keep track of the calendar and meet the filing deadlines to increase your chances of getting a bigger refund. Be sure to look for contributions and payments you can make before the year is over that will cut down on your taxable income. If you’re filing taxes for the first time or you know your schedule is too hectic to file your taxes yourself, working through the process with a tax professional either online or in-person can expedite the process and help you get the biggest return possible.
