Every taxpayer strives to ensure that there are no errors in their income Tax Refund as it could end up costing them money by way of fines and penalties. By submitting the correct returns, taxpayers can avoid falling foul of the tax authorities. They can also ensure that they get the largest tax round possible in 2023.
With the tax filing deadline coming up on April 18 this year, taxpayers will be looking for ways to reduce their tax liability. But recent tax changes have meant that filers are in for smaller refunds this year in most cases. The expiration of several pandemic-related tax benefits, including the Economic Impact Payments and the enhanced Child Tax Credit stimulus check, has been the main reason.
But it doesn’t mean that filers cannot find ways to increase their tax refund. It helps if you plan strategically and take a thorough tax filing approach. You can then get the best out of your tax-saving opportunities and even potentially get a bigger tax refund from the government. By the best use of resources available online for free, you can both get your tax done right and also receive a maximum tax refund from the IRS.
Ways You Can Increase Your Tax Refund
One way you can increase your tax refunds is by choosing the best filing status. It can be any one of the five options for individuals: single, married and filing jointly, married but filing separately, head of household, and qualifying widow or widower with dependent children.
You will not always have the option of changing your filing status, like when you only qualify as an individual tax filer. But, for instance, you can also qualify as a head of household. In such a case, you may take advantage of a much larger standard deduction, and several other tax benefits.
You might also find that you can reduce your taxable income with the use of higher limits for married couples filing jointly when compared with married couples filing separately.
Some taxpayers also find that having two separate tax filers in one household makes them eligible for more tax deductions. This can happen if one spouse has higher medical expenses in a year and has the option of itemizing deductions. It is for you to decide which of the options is the more beneficial.
It Is Prudent To Itemize Deductions Whenever Possible
It would also be prudent to itemize deductions whenever possible. You can reduce your tax liability more than when you take the option of standard deductions for medical expenses. While you would prefer to avoid incurring costs just to itemize, you might get additional opportunities to deduct expenses than you think.
For instance, interest can be deducted on mortgage payments for the initial $750,000 debt for married couples filing jointly. So if you have invested in a home, you may start to itemize your income tax expenses.
Another item that falls under deduction is a charitable contribution. So if you have insufficient expenses to itemize, it should be prudent to batch them. It is advisable to make a large donation every few years rather than making small yearly donations to take advantage of the deduction on charitable contributions.
Taking Advantage Of Fresh Tax Credit
If you fail to itemize your taxes, you are still likely to gain from tax credits in many instances. By doing so you reduce the tax liability on a one-on-one basis. For instance, if you finally owe $3,000 in income tax and then claim a $1,000 tax credit, you would end up owing only $2,000.
But many of the tax credits do not fall under the refundable list. So if your tax credits lead your tax liability to below zero, you would still not receive a tax refund if the credit is not on the refundable items list. But then you would be avoiding tax debts in such a scenario.
Tax credits are subject to change. So you need to be on the lookout if there are any new ones that you would be eligible for. Or you could start your planning now to take advantage of tax credits for the coming filing season.
For instance, for the 2023 tax year, which would be affecting your next year’s tax filing season, filers can increasingly take advantage of credits related to the environment under the Inflation Reduction Act. There are extended or fresh tax credits for items such as the installation of electric heat pumps, buying electric cars, or installing home solar panels.
These fresh tax credits have been around for 8–10 years. This gives people the time to plan and act accordingly. But filers must make sure to double-check tax credits before purchasing any time and ensure that they qualify for them.
Healthcare Saving Accounts And Tax Refunds
You can save on healthcare expenses while saving on income tax and ensuring that you can qualify for a tax refund. If you use a healthcare saving account and have a health insurance plan that falls under the high-deductible category based on the requirements of the tax authorities for any given year, you are allowed to make a pre-tax contribution. This helps to reduce your taxable income.
This helps to make that money turn tax-free. You can even withdraw it tax-free when using the funds for eligible healthcare expenses. Further, if your workplace offers you a flexible spending account, you could take advantage of it to set aside pre-tax funds every year and pay for your healthcare expenses to the extent to which you are eligible.
But the limited rollover capabilities year-on-year have been limited by the FSA funds. But through careful planning, you can bring down your taxable income with such an account and could also increase your tax refund amount.
Another way you can increase your tax refund while saving money long-term is by maximizing your retirement contributions. Investing in a 401(k) for instance, or into individual retirement accounts (IRA), should help you reduce taxable income while also contributing substantially to the retirement portfolio.
Every penny that you save in the account for which you are eligible up to the retirement amount your end up saving your taxes and even make you eligible for a tax refund.