While Americans may have differing opinions on how their taxes are spent by the government, when it comes to paying our taxes, many of us are seeking methods to avoid paying more than we owe – or even to increase our tax refunds. If you are constantly asking yourself, “why is my refund so low?” you should check out these recommendations that can help you boost your tax refund.
How to Max Out Tax Refund
1) Reconsider your filing status
One of the first choices you make when filing your tax return — deciding on your file status — might have an impact on the size of your refund, especially if you’re married and have a joint income. Despite the fact that nearly 96 percent of married couples file jointly each year, filing a combined return is not always the best way if you’re looking for how to get the biggest tax refund possible.
· While maintaining your Married Filing Separately status sometimes necessitates more effort, the time you put in can result in significant tax savings – if the circumstances are appropriate. Consider the following scenario: If one spouse is responsible for a significant amount of medical expenses, such as COBRA payments as a result of a job loss, computing taxes separately may result in a higher deduction.
· The Child Tax Credit is accessible to married couples who file their taxes independently. For 2020, the credit is $2,000 per kid under the age of 17 in 2020, and it could then be claimed by a separate filer who has less than $200,000 in adjusted gross income (it is $400,000 for joint filers). The benefit is no longer available for married couples filing jointly.
· With the American Rescue Plan, the Child Tax Credit is increased to $3,600 or $3,000 per child, based on the age of the child, for the 2021 tax return that you will prepare in 2022. The credit is also extended to children up to the age of 17, for your tax return in 2021 that you will organize in 2022. In addition, the credit is entirely refundable for the year 2021. Beginning in July of 2021, the Internal Revenue Service will begin handing out advance payments of the 2021 Child Tax Credit in order to get money into the hands of families more quickly.
2) Make the most out of tax deductions
It is possible that you are not aware of all of the deductions available to you, and several of them are frequently neglected. The deductions you are eligible for can make a substantial difference in the amount of money you receive in your refund. They are as follows:
State sales tax – Using the IRS’s calculator, you can determine how much of your state and local sales taxes you can deduct.
Reinvested dividends – Although this isn’t exactly a deduction, it has the potential to lower your overall tax liability. Include income from mutual funds that are automatically reinvested in your cost basis when calculating your cost basis. When you sell your stock, you may be able to decrease your taxable capital gain as a result.
Charitable contributions – Donations of significant value are not the only option to claim a tax deduction. Keep records of all of your qualified minor expenses, such as the ingredients for the delicious cake you contributed to the bake sale, as well. A few philanthropic expenditures here and there can soon accumulate, and you may be astonished at how quickly this can happen.
Student loan interest – Even if you did not pay for this yourself, you are still eligible for a tax deduction as long as you are the one who is legally responsible to do so. According to the new standards, if someone else pays the loan, the IRS will treat it as if you were given the money and used it to pay the student loan in the first instance. In the event that you complete all of the requirements, you will be eligible for the tax deductions.
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3) Maximize your IRA and HSA contributions
Opening or contributing to a traditional IRA for the prior tax year is permitted until the filing deadline (unless the deadline is postponed due to a weekend or holiday) is reached. Because of this, you have the option of claiming the credit on your tax return or filing early and utilizing your refund to open an account with the bank.
· Contributions to a traditional IRA can help you minimize your taxed income. You can make the maximum contribution and, if you’re at least 50 years old, you can take advantage of the catch-up provision, which can increase the amount of money you put into your IRA.
· If you meet the income requirements, you can still benefit from contributions to a Roth IRA, even though they are not eligible for a tax deduction.
· Provided that you seek an extension in a timely manner, if you are self-employed, you have until October 15, 2021 to make contributions to certain types of self-employed retirement plans. If you do not request an extension, the usual filing due for that year will be the deadline for the majority of charitable contributions.