When it comes to filing your income taxes, are you leaving money on the table? A lot of people do. They let years’ worth of receipts pile up in the drawer and fail to maximize the deductions and credits to which they are entitled.
With tax season upon us, there’s just one thing to be excited about: your tax return. Whether you want to deposit your tax refund into a savings account or make large expenditures, you’ll most likely want the maximum tax refund.
Do you want to get the most out of your tax return this year? We’ve got some ideas and methods to help you. For best results, remember to seek the advice of a tax specialist regarding your specific tax status.
Is It True That Tax Deductions Increase Your Refund?
A tax deduction does not reduce your income tax liability dollar for dollar. A tax deduction reduces your taxable income, so you pay less in taxes overall. It may potentially boost your refund, depending on the size of the deduction, the kind of deduction, your income, and your filing status. It’s also critical to ensure that you’re just deducting what you’re entitled to.
Is there a cap on the amount of a tax refund?
There is no cap on the amount of your tax refund. High-value tax refunds, on the other hand, may be sent as a paper check rather than a direct deposit in some situations. The IRS does not disclose the threshold for when a check is sent instead of a direct deposit, however direct deposits are limited to three per account.
6 Ways to Get the Most Out of Your Tax Refund
While there are many laws and regulations governing taxes and how your refund is calculated, there are certain ways to potentially earn a larger refund. Check out these six ideas for getting the most out of your refund.
1. Understand Your Available Deductions and Exemptions
An exemption is money earned but not subject to taxation. A deduction reduces the amount of your income that must be taxed by lowering your taxable income.
The standard deduction and itemized deductions are the two basic forms of tax deductions. Taxpayers must utilize one or the other, and the IRS recommends itemizing deductions if your total itemized deductions exceed the standard deduction.
Exemptions and deductions both reduce the amount of money you owe the IRS each year and can help you get a bigger refund—or, at the very least, a lower bill. That is why it is critical to understand the deductions you are entitled for if you itemize.
Just in 2021
For the 2021 tax year, the IRS increased the standard deductions. The updated figures are as follows:
- The filing fee for married couples filing jointly is $25,100.
- $12,550 for singles and married couples filing separately.
- Household heads: $18,800
- The Earned Income Tax Credit has also been increased to $6,728 for taxpayers with at least three qualified children.
2. Increase Your Retirement Savings
Contributions are taken before taxes are paid. You do not pay taxes on that money, and it is deducted from your taxable income. Contributing to an individual retirement account (IRA) also works. You can’t normally contribute to an IRA with pre-tax cash, but you can deduct your contributions from your taxes.
The IRS increased the maximum contribution taxpayers can make to their retirement accounts, including 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plans, to $19,500 in 2021.
3. Use a Flexible Spending Account to Pay for Medical Expenses (FSA)
A flexible spending account (FSA) allows you to set aside a portion of your pay before taxes for medical expenses as well as child and dependent care. Many businesses provide FSAs, which can be a useful tool for decreasing your tax burden by deducting money spent on medical and childcare expenditures from your taxable income.
4. Subtract Medical and Dental Expenses
If you itemize your deductions, you can deduct all medical expenditures incurred in the preceding year that exceed 7.5 percent of your adjusted gross income. Health insurance premiums paid using after-tax dollars, dental treatment, eye care and glasses, mental health counseling, and driving to and from doctor visits and other medical appointments are all examples of medical expenses.
Qualified medical expenses that surpass 7.5 percent of your adjusted gross income (AGI) for the year qualify for a deduction in the 2021 tax year. To qualify, however, the amount of unreimbursed medical expenses must exceed 10% of the adjusted gross income. Medical deductions are subject to certain rules, so be sure you understand what you can deduct.
5. Contribute to Charitable Organizations
Clean up your closets, donate an old car instead of trading it in, and make monetary donations to your favorite charity if you itemize. Charitable contributions can reduce your tax liability and may increase the amount of any tax return you receive. Make certain that your donations are made to a qualified charity and that you retain accurate records. You must itemize your charitable contributions on Schedule A of your 1040 tax return.
6. Speak with a Tax Professional
If your tax returns are complicated and you suspect you’re leaving money on the table, it’s time to seek professional assistance. A professional tax and accounting firm can help you complete your taxes efficiently for a potentially faster refund, as well as guarantee you’re doing all possible to maximize your refund.
Final Thoughts: Claim What You Deserve
Remember that receiving a tax refund is not an undeserved windfall: it is your money that you have been lending to the government. Before you spend it all, consider how it will help you get closer to your business financial goals. Now could be an excellent time to pay down debt or invest in order to achieve your goals and have a more secure future.
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