10 Tips for Boosting Your Tax Refund

It’s no secret that just about every taxpayer in the United States looks forward to receiving a tax refund from Uncle Sam. Traditionally, most people go through the routine process of preparing their income tax returns, sending them off to the IRS, and patiently awaiting the arrival of their refund check.

However, there are those who take things to an extreme.

Take, for instance, the case of Nina Macena from Dothan, Alabama, who in July 2014 was found guilty by an Alabama jury of conspiring to defraud the government by submitting fraudulent tax returns in an attempt to claim over $300,000 in refunds. Macena was also charged with multiple counts of wire fraud and aggravated identity theft for providing stolen identities to Ivory Bolen, also from Dothan, who the pair used to orchestrate their scheme.

Then there’s Brigitte Jackson, a Georgia resident, who found herself in hot water after attempting to cash a counterfeit state tax refund check worth a staggering $94 million. Jackson reportedly fabricated a tax return claiming $99 million in wages, which served as the basis for her exorbitant refund request. However, authorities caught wind of the suspicious activity and issued her a check for $94,323,148, only to apprehend her for theft and conspiracy to defraud just as she was about to cash it.

Thankfully, there’s no need to resort to such deceitful tactics to maximize your tax refund each season. Steering clear of such schemes not only reduces the risk of a tax audit but also ensures peace of mind. Simply follow these ten straightforward tips to optimize your tax return without any undue risks or complications.

Each year, numerous married couples opt to submit a joint tax return, yet in certain scenarios, this may not be the most financially prudent choice. As with many aspects of income tax filing, the decision hinges on individual circumstances. For instance, couples with similar incomes who file jointly might find themselves pushed into a higher tax bracket.

Choosing to file separately could potentially enhance a refund, particularly if one spouse has substantial medical expenses or other deductible costs. By deducting these expenses, the spouse can effectively lower their adjusted gross income, resulting in a larger refund. Apart from medical bills, expenses such as those incurred for business travel are also deductible.

However, filing separately may entail forfeiting or reducing various tax credits, such as the child tax credit.

If uncertain, it’s advisable to crunch the numbers for both scenarios—or enlist the assistance of a tax preparer or software to do so. Taking this step ensures informed decision-making and potentially maximizes your tax benefits.

Increasing your retirement account contribution can also lead to a reduction in your taxable income. The IRS offers taxpayers the flexibility to claim IRA contributions until April 15. You’re even permitted to establish a retirement account by Tax Day (although waiting until the eleventh hour isn’t advisable). For tax years 2020 and 2021, the IRS permits IRA contributions of up to $6,000, with a higher limit of $7,000 for individuals aged 50 and above (applicable to both Roth and traditional IRAs). However, transferring funds from one retirement account to another does not count toward this contribution limit. Additionally, the deductible amount may be restricted if you participate in a work-related retirement plan or exceed certain income thresholds.

Contributing to a Roth 401(k) will not affect your taxable income since you’re using post-tax funds to contribute to the account.

Here’s a strategy I’m implementing this year: I’m making my January mortgage payment before December 31st, enabling me to deduct the additional interest on my 2014 tax return. Facilitated by my participation in my bank’s mortgage accelerator program, this process is simplified. By paying half of the mortgage every other Friday, I consistently remain one month ahead, effectively making an extra payment by year-end. While this approach works for me, it’s not obligatory. If financially feasible, you can independently make that extra payment in December, yielding the same tax benefit and potentially shortening the loan term. Personally, I’ve managed to reduce my loan payments by three years through this method.

The essence is that timing is crucial in tax planning, offering opportunities for increased savings. Whether it’s paying property taxes, scheduling medical treatments towards year-end, or settling state estimated taxes in December, strategic calendar management allows for itemization and maximization of deductions, consequently lowering taxable income.

The earned income tax credit provides valuable assistance to individuals and families with low to moderate incomes, helping to alleviate their tax burden. This credit holds particular significance for those with children in the same income bracket. Unlike most tax credits, which are nonrefundable and only erase a tax bill without providing additional funds, the earned income tax credit allows eligible individuals to receive any excess credit amount as part of their refund—a feature that sets it apart.

In 2019, approximately 25 million individuals and families benefited from the EITC, collectively receiving around $63 billion. For the tax year 2020, the maximum EITC amounts were as follows: $538 with no qualifying children, $3,584 with one qualifying child, $5,920 with two qualifying children, and $6,660 with three or more qualifying children. While not everyone qualifies for the maximum credit, these figures offer a glimpse into the potential benefits. It’s important to review the eligibility criteria before filing your taxes to ensure compliance.

To itemize or opt for the standard deduction? That’s the decision many taxpayers face. The general rule, as advised by experts, is to assess whether itemizing expenses such as home mortgage interest, refinance costs, state income and property taxes, medical expenses, and similar outlays would exceed the standard deduction. For the tax year 2020, the standard deduction amounts are $12,400 for single filers, $24,800 for joint returns, and $18,650 for heads of households.

The IRS suggests that itemizing may be advantageous if any of the following scenarios apply to you:

  • You’re ineligible for the standard deduction.
  • You incurred significant uninsured medical and dental expenses.
  • You paid mortgage interest or property taxes.
  • Your unreimbursed employee business expenses were substantial.
  • You made charitable contributions.

In principle, the more income you earn, the higher your potential tax liability. As anyone who has worked in the United States, whether as a teenager or an adult, knows, the amount of taxes withheld from each paycheck is determined by the information provided on a W-4 form. It’s straightforward: the more estimated deductions you claim on your W-4, the less your employer withholds for taxes. When completing the form, you provide details about your filing status, your spouse’s income (only relevant for determining comparable earnings, which can influence withholding amounts), and any anticipated deductions for the year if you’re not solely opting for the standard deduction.

If you indicate a lower number of deductions, the government will withhold a larger portion of your paycheck, which will be returned to you as a refund after you file your taxes. To adjust your withholding, simply approach your human resources department and request a modification to your W-4 form. However, it’s important to note that if your employer doesn’t withhold enough in taxes, you might end up owing Uncle Sam come tax time.

Keeping pace with the tax code can feel as challenging as keeping up with the Kardashians—overwhelming and dizzying. With tax regulations varying at federal, state, county, and municipal levels, it’s a multifaceted landscape to navigate. However, when it comes to filing taxes, the federal tax code reigns supreme.

The IRS endeavors to simplify matters by providing instructions alongside federal income tax forms, aiding taxpayers in staying informed about the rules. Understanding deductible expenses can potentially enhance your tax refund. Moreover, tax preparation software undergoes annual updates to ensure alignment with the latest IRS guidelines, offering reassurance for those who prefer digital assistance.

Being well-versed in tax preparation intricacies can significantly impact your tax outcome—whether you receive a refund or owe money. Opting for professional assistance is often the best approach. You can enlist the services of a commercial tax preparation company to handle the calculations for you, or, like myself, hire an accountant specializing in taxes.

To find a suitable professional, seek referrals from friends or acquaintances well ahead of tax season. Conduct interviews with potential candidates, inquiring about their availability, fees, and whether they personally handle the tax calculations or delegate them to others. Additionally, ascertain if they are willing to represent you in case of IRS inquiries; if not, continue your search until you find someone who meets your requirements.

If you’re self-employed, saying “yes” may open up opportunities for deducting medical and dental health care premiums for yourself, your spouse, and dependents. What’s great is that you don’t even need to itemize your deductions to qualify. By deducting these premiums, you can lower your adjusted gross income, potentially reducing your tax liability or increasing your refund.

However, it’s important to note that you can’t deduct these premiums when calculating your self-employment taxes. Additionally, the deduction is only applicable for months in which neither you nor your spouse participated in or had access to an employer-sponsored health plan. If you pay health insurance premiums for your employees, you may also be eligible for this deduction. Keep in mind, though, that you cannot claim the deduction if it exceeds your business income.

Alimony—often a complex topic in itself. When it comes to taxes, you’re allowed to subtract the amount you pay to your former spouse from your income tax. However, it’s important to note that you cannot deduct child support payments, noncash property settlements, payments representing your spouse’s share of community property, or expenses associated with property maintenance or use. Additionally, while you can deduct alimony payments, you’re required to report the received alimony as income on your tax return.