, pub-4590242382539466, DIRECT, f08c47fec0942fa0 6 Simple Strategies to Maximize Your Tax Refund – NimBus33

6 Simple Strategies to Maximize Your Tax Refund

Paying taxes is about as fun as stubbing your toe.

But a big tax refund can make up for all of the unpleasantness.

Some people point out that you shouldn’t aim for getting a big tax refund. After all, you’re getting back money that you overpaid.

You could have done other things with that money throughout the year, such as save it in a retirement account or pay down debt.

That’s a fair point, but for many people, a tax refund is like a forced savings plan. But how do you know if you’re leaving money on the table?

A few simple steps can ensure you get the maximum tax refund available.

Simple Ways to Maximize Your Refund

Many people think you owe the taxes you pay out of your paycheck each month, and that’s it. The real story is that those taxes are just an estimate, and you can influence what your final tax bill actually is. By making certain choices with your finances, you can actually change what you owe in taxes.

That’s because the government rewards certain activities, such as having children, buying a house, and saving for retirement.

It does this by giving you certain breaks on your taxes so that you’ll owe less income tax overall. But in order to reap the benefits, you have to make sure your tax information is accurate and up to date.

If you’re wondering how to get a bigger tax refund this year, follow these steps.

Related: How to Avoid an Unexpected Tax Bill as A Side Hustler or Gig-Worker

1. Choose the right filing status.

One of the biggest things to consider is your filing status. This factor affects which standard deduction you can take and limits on other common tax deductions and tax credits you might be eligible for.

If you’re unmarried and are supporting a dependent, you might be able to get more back by choosing the Head of Household filing status. To qualify, you’ll need to pay at least half of the cost of maintaining a home for you and your dependents.

You don’t necessarily need to be that other person’s parent. For example, if you’re supporting a parent or a disabled sibling, you may still qualify.

If you’re married, you can also consider whether you’d benefit more by filing jointly or separately. If your spouse makes much less than you, you might not be able to claim certain deductions or credits if you file jointly. But if you file separately, you both may qualify for certain deductions or credits on your own. This can help your entire family’s bottom line.

2. Decide whether to take the standard deduction or to itemize deductions.

You get a choice when you file your taxes. You can take a standard deduction and lower your taxable income according to a pre-determined amount, or you can itemize each deduction you qualify for.

It’s easier to take the standard deduction, but here’s the kicker: you then won’t be eligible to take other useful tax deductions. For example, you can’t claim a deduction for charitable donations, mortgage interest, or medical expenses.

table comparing the difference between standard and itemized deductionsThat’s why you should run the numbers both ways to see whether taking the standard deduction or itemizing your deductions will net you the biggest tax refund. If you hire a tax professional or use tax preparation software, they should do this for you automatically.

3. Save for your retirement.

Saving money in a retirement account helps you in two ways: you’ll have more set aside for your future, and you’ll save money on taxes. There are two types of retirement accounts: those that let you deduct your contributions and those that let you withdraw money in retirement tax-free.

If you want to get the biggest tax refund today, you’ll want to save as much as you can in traditional retirement accounts. Each type of account has a limit on how much you can contribute:

  • 401(k), 457, 403(b), and Thrift Savings Plan: Up to $19,000 per year
  • Traditional IRA: Up to $6,000 per year (or $7,000 per year if you’re 50 or older)
  • SEP IRA: Up to $56,000 per year or 25% of your pay, whichever is less
  • Solo 401(k): Up to $56,000 per year

4. Save for medical expenses in an FSA or an HSA.

Saving for healthcare expenses in a Flexible Spending Account (FSA) or Health Savings Account (HSA) can also lower your taxable income and improve your financial life.

Any money you put in an FSA or HSA can only be used for certain medical expenses. You can’t use FSA and HSA money for cosmetic procedures like plastic surgery or teeth whitening or for paying insurance premiums. Other than that, the list of allowable expenses is impressively wide, even including things like LASIK surgery and acupuncture.

Your employer may offer either type of account, or you can open an HSA on your own at many banks. Some employers even offer a “dependent care FSA” for childcare expenses. You can save up to $2,700 in a healthcare FSA or $3,500 for individuals and $7,000 in an HSA for families per year.

Related: How to Pay Off Unexpected Medical Debt

table explaining differences between an hsa, hra, and fsa
Source: Self

5. Take advantage of above-the-line deductions.

While itemizing your deductions can net you a higher refund in some cases, most people will opt for the standard deduction. That’s especially true with recent tax reform, which increased the standard deduction so that most people will benefit by taking that route.

That doesn’t mean you’re out of luck yet for claiming deductions. You can take some above-the-line deductions even if you opt for the standard amount.

Peruse this list and investigate any you may qualify for, even if you don’t itemize your deductions:

  • HSA contributions
  • Alimony payments
  • Self-employment tax
  • Student loan interest
  • Retirement contributions
  • School supplies purchased by teachers
  • Health insurance premiums, if you’re self-employed
  • Early withdrawal penalties from CDs and timed savings accounts

6. Take advantage of eligible tax credits.

Tax credits are another godsend for those looking to maximize their tax refunds. These offer a dollar-for-dollar reduction of your tax bill. The government uses tax credits to incentivize certain types of behavior that it believes benefits the environment, economy, or another cause it deems important.

For example, if you take classes at an accredited institution, then a portion of the money you spent can be used to reduce your taxable income.

Each tax credit has its own requirements, so not everyone will qualify. Some common tax credits include:

  • Earned Income Tax Credit: Up to $6,431 for low- to middle-income families
  • Child Tax Credit: Up to $2,000 per qualifying child
  • Residential Energy Credit: Up to 30% of the cost of installing solar panels, fuel cells, or other energy-generating or storing devices at your home
  • American Opportunity Credit: Up to $2,500 for the cost of attending your first four years of college
  • Lifetime Learning Credit: Up to $2,000 on educational expenses at an accredited institution, regardless of whether you’re getting a degree or not
  • Qualified Plug-In Electric Drive Motor Vehicle Credit: Up to $7,500 if you buy an electric vehicle

Related: Do I Have to Pay Taxes on Bank Account Interest?

Getting Your Maximum Tax Refund Means More Money in Your Pocket

Believe it or not, the government does actually want to give you back your tax money, especially if you do the things that qualify for tax credits and deductions. If it didn’t, it wouldn’t offer so many options for you to get your money back.

That doesn’t mean it’ll be easy, as anyone who’s ever looked at the IRS code knows. But if you’re persistent and learn how to take advantage of these opportunities, you’ll be able to get your maximum tax refund. That means more money to help you and your family meet your financial goals.

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