6 Ways to Boost Your Tax Refund
Introduction
If you’re worried you won’t be getting a big tax refund, you’re not alone. According to the IRS, the average size of tax refunds is down by 8.4% so far this year. However, there are steps you can take to boost your tax refund this year or set yourself up for a bigger refund next year. Here are six ways to boost your tax refund.
1. Adjust Your Withholding
If you aren’t withholding enough money from your paycheck, you could receive a smaller refund or even end up owing the IRS. To make your tax refund larger, you can reduce the number of allowances you claim on your W-4, the form that tells your employer how much to deduct from your paycheck for taxes.
Tip: Use the IRS withholding calculator to determine the correct amount to withhold. Review your allowances any time you have a major life event, such as getting married, divorced, having a child, or getting a second job.
Image Description: Infographic explaining how to adjust your withholding on a W-4 form.
2. Review Your Filing Options
When preparing your tax returns, there are five options for filing status: Single, Married Filing Jointly, Married Filing Separately, Head of Household, and Qualified Widow(er) with Dependent Child. Choosing the right filing status will help you reduce your tax obligations and get a bigger refund.
Tip: In some cases, married couples are better off filing separately, such as when one spouse has many out-of-pocket medical expenses.
Image Description: Infographic showing different filing status options and their benefits.
3. Know Your Credits and Deductions
The IRS offers dozens of tax credits and deductions you can claim to reduce your tax liability. Credits are subtracted from the amount of taxes you owe for the year, while deductions are subtracted from your income before calculating your taxes.
Common Credits and Deductions
- Earned Income Credit: For taxpayers with low-to-moderate incomes.
- Child Tax Credit: If you have children.
- Child and Dependent Care Credit: If you pay for childcare.
- Lifetime Learning Credit: For education expenses.
- American Opportunity Tax Credit: For college-related expenses.
Image Description: Infographic showing common tax credits and deductions available to taxpayers.
4. Contribute to a Traditional Retirement Account
Contributing to a traditional retirement plan like a 401(k) or individual retirement account (IRA) can help increase your refund because you won’t owe taxes on those contributions. Any funds you put toward a traditional 401(k) or IRA are tax-deferred until you withdraw them in retirement.
Tip: You have until April 15 to contribute up to $6,000 to a traditional IRA and reduce your tax liability for the previous tax year. If you’re 50 or older, you can contribute up to $7,000.
Image Description: Illustration showing how contributing to a retirement account can boost your tax refund.
5. Use Tax-Advantaged Spending Plans
Does your employer offer tax-advantaged programs to help you pay for common expenses? Flexible spending accounts (FSAs) let you pay for eligible medical expenses tax-free. If you have a high-deductible health plan, you can enroll in a health savings account (HSA), which is similar to an FSA but also earns interest and can be rolled over year to year.
Tip: Enroll in commuter programs if available to pay for transportation or parking with pre-tax contributions.
Image Description: Infographic showing the benefits of using tax-advantaged spending plans like FSAs and HSAs.
6. Hire a Professional
Having trouble with your tax returns? Consider hiring a professional tax preparer. Tax pros can help you identify tax credits and deductions, provide advice on limiting your tax obligations throughout the year, and help you secure the biggest refund you can.
Tip: While hiring a professional involves a fee, the potential increase in your tax refund can offset this cost.
Image Description: Infographic showing the benefits of hiring a professional tax preparer.
