It's safe to say most people don’t look forward to filing their taxes. What many people do enjoy, though, is receiving their tax return. Whether you plan to use that money for a vacation or paying down debt, getting that refund is great.
Like in 2021, many families will receive a smaller tax refund than in the past. That’s because the relief efforts Congress introduced during the pandemic, like expanded tax credits and deductions, have ended.
Here are five steps you can take to get the most out of your tax refund this year. And please remember to discuss your particular circumstances with an appropriate tax professional before taking action.
How to Increase Your Tax Refund
1. Itemize Your Deductions
The standard deduction is $12,950, so claiming it is tempting rather than tracking down receipts and tax forms so you can itemize your deductions.But itemizing might be worth it if you’re a homeowner with a sizeable mortgage, gave money or other items to charity, or paid points when you took out your mortgage.
If you’re an educator, you can deduct up to $300 of school supply expenses even if you don’t itemize deductions. Start gathering information right away so you’ll have everything ready at tax time.
2. Claim Education Expenses
If you’re paying college expenses for yourself, your spouse, or a child, two education credits may help cover those costs: the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC). The AOTC is a partly reimbursable credit for 100% of the first $2,000 of education expenses you pay and 25% of the next $2,000. The LLC covers 20% of the first $10,000 of education expenses.
The AOTC is eliminated once your income exceeds $90,000, and the LLC income limit is $69,000. There are other differences as well, so weigh your options carefully when deciding which credit to claim. Start gathering the data you’ll need to claim the deduction, and you may also want to consider prepaying tuition or other costs to get the maximum credit possible.
3. Claim Credit for Your Entire Household
In some cases, tax credits may be more valuable than deductions. For example, if your adult children, their significant others, and/or friends came to live with you, you may be eligible to claim a $500 tax credit for non-child dependents you support if their income is less than $4,400.
You can claim the Dependent Care Credit for parents you support, even if they don’t live with you. Stick a note into your tax file (of course, you’re on it with a ready-to-go tax file) reminding you to look into claiming these credits at tax time.
4. Contribute to Tax-Deductible Retirement Accounts
This is a way to save for your future and boost your tax refund. If your income is under $68,000, you may qualify for a Saver’s Tax Credit as well. That’s three potential benefits from the same action. Remember, always make sure to contribute to your 401(k) by the end of the year. You have until the tax filing deadline to contribute to an IRA, but if you’re claiming the Saver’s Tax Credit, do that by year-end as well.
5. Deduct Worthless Investments
Keep in mind that if you have an investment that went belly-up and you sell it before the end of the year, you can try to claim a tax loss. If someone owes you money that you can’t collect, you may be able to claim that as a bad debt deduction as well.
Write a description of the debt that includes the name of the debtor, the amount, the date the debt was due, and any relationship between you and the debtor. Describe the efforts you made to collect and why you think the debt is now worthless.
You won’t get a tax refund until you file your tax return. Even if you aren’t required to file a tax return because your income is low, file anyway to claim your refund for taxes withheld and any refundable credits to which you’re entitled. If you wait more than two years to file, the IRS will not issue you a refund.
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