Last Updated: March 17, 2023
Most of us look for ways on how to maximize tax returns. This article addresses simple strategies and tips that should help you look forward to a bigger tax refund sooner. We’ve also included government (financial relief) measures implemented as a result of the COVID-19 pandemic.
What Is a Tax Refund?
A tax refund is a money issued to you by the Internal Revenue Service (IRS) after determining that you have overpaid your taxes in the previous year.
In getting money back from taxes, you must file for a tax return and provide updated information about your income. You usually get a refund if your employer withholds a more significant sum of your paycheck for taxes. And if you’re self-employed, you can expect a refund if you have overpaid your tax liability.
Many consider a tax refund to be a bonus and look forward to it each year. Others see a tax refund as lending interest-free money to the government. It’s always good to know how to maximize a tax refund using it for a planned purchase, paying off a credit card balance, a retirement fund, or even investing.
The IRS has a Tax Withholding Estimator designed to help you estimate whether you’re eligible for a refund or you need to pay additional money to the government. This estimator requires you to input your income and tax deductions that you might be eligible for.
|NOTE: According to a National Opinion Research Center (NORC) survey at the University of Chicago, 32% of taxpayers are not sure whether they should expect a tax refund or if they owe money to the IRS.|
How to Maximize Tax Returns
To enjoy an attractive refund each tax session, you must be well-informed and use every tax break available. Here are five tax return tips to help generate a bigger tax refund bigger:
Choose a Filing Status
There are five filing statuses to choose from:
- Married filing jointly
- Married filing separately
- Head of household
- Qualifying widow/er with dependent child.
The amount of your tax liability and the amount of your tax refund depending on your filing status. You should consider your situation carefully and choose the appropriate status using the IRS guidelines.
If you’re married, you and your spouse should decide whether you’re filing jointly or separately.
One of the ways on how to get a bigger tax refund and lower your taxable income is to use all tax deductions you’re eligible for.
In the US, tax deductions exist in both state and federal taxes. You can choose between standard and itemized deductions. If you decide to itemize, deductions are only taken out for an amount over the standard deduction limit.
Everyone wonders how to get more back on taxes. You might consider itemizing your tax deductions if you’ve had substantial medical expenses, charitable contributions, casualty, disaster or theft losses, interest or taxes on personal property, or student loan interest. If you’re self-employed and work from home, you may be eligible for a home office deduction, as well. There are also over-the-line deductions that you can use even if you don’t itemize.
And if you’re married, one partner filing jointly requires the other to do the same.
IRA and HSA Contributions
A traditional IRA (Individual Retirement Account) and Health Savings account (HSA) can be great ways to save money. Try to maximize your savings on one or both of these accounts, then you’ll likely get a deduction.
If you meet certain conditions, you might be eligible for the Retirement Saver’s Credit based on your contributions.
Claim a Tax Credit
Tax credits are an efficient way on how to maximize tax returns. Depending on your income, filing status, and whether you have eligible dependents, you may qualify for certain common tax credits.
Earned Income Tax Credit (EITC)
This credit is meant for taxpayers with low income. It reduces their tax liability on a dollar-for-dollar basis.
Child and Dependent Care Tax Credit
If you have children or provide for a qualified dependent, you might meet the conditions to claim this credit.
Lifetime Learning Credit (LLC)
This credit aims to lower education costs. If you’ve had education expenses in the previous year, you might be eligible for this credit.
The American Opportunity Tax Credit (AOTC)
This credit is used for qualified education expenses in the first four years of higher education.
How to maximize tax deductions? First, make sure to avoid mistakes. Double-check all your numbers and provide all necessary documentation. Otherwise, you could prolong your anticipated refund.
|NOTE: Most tax credits are non-refundable, which means that can only reduce your tax liability to zero.|
|Filing status||Ways to maximize your tax refund||Tax credits (including but not limited to)||Tax deductions (including but not limited to)||How to get a tax refund sooner|
|Single||Appropriate filing status||Earned income tax credit (EITC)||Charitable contributions||File early|
|Married filing jointly||Tax deductions||Child and dependent care tax credit||Business Travel expenses||File electronically|
|Married filing separately||Tax credit||Lifetime learning credit (LLC)||Casualty, Disaster, or Theft Losses||Choose a direct deposit to your bank account|
|Head of Household||Consider itemizing your deductions||The American Opportunity tax credit||Qualified education expenses|
|Qualifying widow/er with dependent child||Home office deduction|
|Jury duty fees|
|Student loan interest|
|Personal property taxes|
What Is the Quickest Way to Get a Tax Return?
After filing a tax return, it will take some time for the IRS to process it and issue you your money. Note three simple tips for filing taxes to help speed things up:
This might be the most significant step that can speed up the process. It takes the IRS approximately six to eight weeks to process your return and issue your money when sending your papers by mail. If you file electronically, it takes around 21 days to get your return. For quick and easy filling, check out some of the top-rated business tax software.
Besides answering how to get a bigger tax refund, if you follow these guidelines, you will also get your refund quicker. Sign up for a direct refund, and it will be directly deposited into your bank account. By filing an IRS 8888 form, you can have your money distributed to up to three accounts.
File your return as soon as possible to get your refund quicker. Don’t wait for the end of the filing deadline. In addition to how to increase a tax refund, you can also track your refund status electronically, which will not speed up the process, but it will allow you to know at which stage your application is. You can start tracking your refund within twenty-four hours, as opposed to three to four weeks when filing via mail.
|NOTE: The majority of tax filing companies have an option for efficiently filing electronically. Explore your options and check out Turbotax or some of its alternatives.|
Measures During COVID-19
Many have wondered: what can I claim on my taxes to get more money given the COVID-19 relief measures passed in 2020?
- The Families First Coronavirus Response Act (FFCRA) makes it possible for employers to provide employees with paid sick leave or expanded family and medical leave for reasons related to the pandemic.
- The Coronavirus Aid, Relief and Economic Security Act (CARES) Act and the Coronavirus Response and Relief Supplemental Appropriations (CRRSA) Act passed extended unemployment benefits to include stimulus payments.
These stimulus payments are not taxable. But if you didn’t receive the expected total amount, you could file for more in the form of recovery rebate credit when filing your taxes, which is also one of the ways on how to maximize tax returns.
Additionally, the CARES act allows the possibility to waive the 10% penalty for early withdrawal from your retirement account if the withdrawal is related to the pandemic.
|NOTE: The average tax refund amount per capita in 2020 was $ 2,549—around 74% of all filers received a refund. By April 2021, the IRS received 93 million tax returns and issued over 62 million refunds with an average of $2,893 per capita.|
How to get the most out of your tax return and get it as soon as possible is a concern for everyone, which could be done by filing electronically, double-checking your numbers, and using every applicable tax break available. You might also consider hiring a professional who can help maximize your tax deductions and advise you on the best filing status for your situation.
You can get a bigger tax refund if you make intelligent choices when opting for filing status, using all tax deductions you’re eligible for, and claim a tax credit.
If more money is withheld from your paycheck for taxes than necessary, you will make less money over the year, but your tax refund will be more significant. If you’re self-employed, overpaying your tax liability will leave you with less income but will result in a larger tax refund.
The data are different across the States, but in 2020 and 2021, the average refund amount was around $ 2,500 and $ 2,900. And since you now know how to maximize tax returns, you’ll be ahead of the game via this article.