(
) — Many Americans
rely on their tax refund
To manage your finances effectively, and there are multiple strategies you can employ to maximize the amount of money you receive back.
A recent
Credit Karma survey
discovered that 37% of taxpayers depend on their refund to make ends meet, with this number increasing to 50% amongst millennials.
As stated by the IRS, the
average tax refund
In 2024, this amounted to $3,138, indicating that significant sums of money could be impacted when you submit your federal tax return.
It represents your biggest monetary exchange annually,” stated Mark Steber, the chief tax information officer at Jackson Hewitt Tax Service. “The amount of money has never been greater.
Consider these four points to boost your tax refund.
1 – Select the appropriate tax-filing status
Your
filing status
significantly influences the amount of tax you have to pay. It dictates which income tax bracket you fall into, the size of your standard deduction, and whether you qualify for specific credits and deductions.
Generally, your tax-filing status depends on whether you were single or married as of December 31st, although various factors come into play beyond just this date.
If you’re not married: Single as opposed to head of household
Individuals who aren’t married but contribute financially towards supporting a child or another eligible family member might qualify to file their taxes as single.
head of household
—a distinct tax classification that offers multiple financial advantages.
For the tax year 2024 (the returns you’ll file in 2025), individuals filing as head of household may
claim a standard deduction
at $21,900 versus $14,600 for individuals, reducing their tax burden. Those claiming head of household status see their income taxed at a lower rate as well.
more favorable rate
than single filers.
To qualify as head of household, you must meet certain criteria including having care of a dependent.
qualifying dependent
a child or family member depending on you financially.
Generally, an individual cannot be listed as a dependent on multiple tax returns. Additionally, you are not allowed to claim your spouse if you’re filing a joint return.
And no, your pet dog doesn’t qualify as well, despite relying on you for sustenance.
If you’re uncertain, the IRS offers a tool to assist you in determining your filing status.
here
.
If you’re married: Choosing between filing jointly or separately
Husbands and wives may opt for joint filing, submitting one tax return together, or they might decide to file individually, where each partner submits separate returns listing their respective earnings, allowable deductions, and available credits.
For most married couples, filing their taxes jointly tends to be the most financially advantageous choice. This is due to the fact that those who file jointly usually benefit from greater tax advantages. Joint filers often qualify for a higher standard deduction and have a better chance of being eligible for specific tax credits such as the Child Tax Credit.
Child and Dependent Care Tax Credit
.
Lisa Greene-Lewis, a certified public accountant and tax specialist for TurboTax, explained the advantages as follows: “By getting married and filing taxes jointly, you have the potential to earn additional income yet pay lower taxes since both the tax brackets and income thresholds increase when couples file together.”
Nevertheless, there are instances when a married couple might prefer to file their taxes individually.
For example, if you’re in the process of separating and don’t want to share your tax liability. Greene-Lewis said self-employment could be another reason married couples choose to file separately.
It could also be beneficial to file individually if either you or your spouse has substantial medical bills, as this might assist you in surpassing the IRS threshold for deductible expenses.
according to TurboTax
.
It’s crucial to correctly select your married filing status since opting to file separately might exclude you from certain tax advantages that you would typically qualify for.
2 – Maximize your tax deductions
By claiming deductions, you have the potential to decrease your total tax liability as they enable you to lessen your taxable income, resulting in reduced taxes owed.
Taxpayers have two primary choices: they can opt for the standard deduction, which is a set amount.
set by the IRS,
or opt to itemize deductions, thereby lowering their tax liability by considering particular expenditures.
The majority of people who file their taxes choose the standard deduction since it is simpler and does not necessitate providing evidence. This fixed amount can be deducted from taxable income by all taxpayers who have earned revenue prior to calculating their tax liability.
You can find out the standard deduction amount according to your filing status.
here
.
Other individuals might choose to avoid using the standard deduction and instead opt for itemized deductions, as this can provide a more significant tax advantage for numerous people.
particularly homeowners
.
This occurs because itemizing deductions enables homeowners to offset costs such as mortgage interest and property taxes up to a specific limit. When tax filers choose to itemize, they may also subtract medical expenses, charitable contributions, and various other expenditures from their taxable income.
Should your total itemized deductions exceed the standard deduction amount, opting for itemization could lead to a reduced tax liability. However, this approach usually demands more effort and meticulous record-keeping regarding your expenditures.
Additionally, don’t count on the IRS to inform you about which deductions you ought to claim.
The IRS doesn’t keep track of that for you,” Steber stated. “Should you omit a benefit, such as a higher itemized deduction, it remains omitted until you choose to amend or correct it.
Some costs can be deducted regardless of whether you choose the standard deduction or itemize your deductions. As stated by the IRS,
those are
:
- Alimony payments
- Corporate usage of your vehicle
- Usage of your residence for business purposes
- Funds you deposit into an IRA
- Funds deposited into your health savings account
- Consequences of taking money out prematurely from your savings account
- Student loan interest
- Teacher expenses
- For certain members of the military, government employees, self-employed individuals, and those with disabilities: work-related educational costs
- For members of the military: relocation costs
If you choose to itemize, you may subtract these costs:
- Bad debts
- Canceled debt on home
- Capital losses
- Donations to charity
- Profits from selling your house
- Gambling losses
- Home mortgage interest
- Revenue from income, sales, real estate as well as personal property taxes
- Costs related to disasters and theft
- Medical and dental costs exceeding 7.5% of your adjusted gross income.
- Miscellaneous itemized deductions
- Opportunity zone investment
3 – Utilize tax credits
It can be simple to mix up tax deductions and tax credits, yet they have different implications.
not the same
.
In contrast to deductions, which lower your taxable income, a tax credit provides an exact dollar amount that taxpayers can subtract directly from their income taxes owed.
If you owe $10,000 and qualify for a $1,000 tax credit, this credit reduces your tax liability by $1,000, bringing your total down to $9,000.
In contrast, a $1,000 deduction lowers your taxable income rather than reducing your tax bill directly. Therefore, if you fall into the 24% tax bracket, this would result in $240 in savings for you.
Steber referred to tax credits as the “holy grail” of tax advantages and noted that they are independent of deductions. This means you can utilize them irrespective of whether you choose to itemize your deductions or opt for the standard deduction.
Green-Lewis stressed the significance of keeping your documents organized, particularly if you have kids.
“Children are eligible for significant deductions and credits, however, you must possess the correct Social Security number to claim them,” she stated.
Several typical tax credits you might be eligible for include:
Earned Income Tax Credit (EITC)
This benefit targets low-to-moderate earning individuals and families. The size of the credit varies based on your income level, marital status, and how many children you have. In the tax year 2024,
the maximum credit
varies from $632 for individuals without children all the way up to $7,830 for taxpayers who have three or more eligible dependents.
Child Tax Credit (CTC)
: You
may qualify
For this tax benefit applicable to children under 17, the credit amounts to as much as $2,000 for each eligible child in 2024. The exact value of the credit varies based on your income level and the number of children you claim. Further details regarding qualification criteria can be found elsewhere.
here
.
American Opportunity Tax Credit (AOTC)
: A credit for eligible costs related to higher education such as tuition, textbooks, and materials. For the year 2024, this applies.
claim up to $2,500
for each qualifying student. To qualify, the student needs to be within their initial four years of higher education.
4 – You can still make a contribution to your Individual Retirement Account (IRA).
Contributing to an
individual retirement account (IRA)
It can reduce your taxable income, leaving you with less tax to pay, and there’s still ample opportunity to achieve this before the deadline for the 2024 tax year.
Individuals filing taxes must submit their IRA contributions by April 15, 2024, to potentially reduce their 2024 tax liability.
This is due to the fact that what’s known as a “traditional” IRA allows you to make contributions with money that hasn’t been taxed yet. This means you can reduce your taxable income by the sum of your contribution.
For 2024, you have the option to contribute as much as $7,000 to an IRA.
traditional IRA
(including a $1,000 catch-up for those aged 50 and above).
As long as your contributions do not go over the $7,000 limit, you have the option to classify any funds added from today until tax day as previous year’s contributions.
Steber mentioned that the IRA is among the few options available for impacting the previous year’s taxes once the current calendar year has concluded.
It’s a well-established and verified tax advantage,” he stated, referring to the IRA as “a precious jewel.
There are a
few limitations
For instance, you might have to decrease or completely remove your IRA deduction if you or your spouse earn above specific amounts, particularly when both of you participate in a workplace savings plan such as a 401(k).
Additionally, contributions to Roth IRAs cannot be deducted.
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