Did you know that the average tax refund last year shot up from what it was for the 2019 tax year? The average person received $2,827 back from the government on their 2020 tax returns, while that number was just $2,476.
If you are thinking, “Wow. That sounds like a lot. I never get that much money back when I file my taxes!” Then, we’ve got news for you: you might not be filing correctly in order to get the most money back on your tax return.
To really get the most money back, you need to be mindful of deductions, credits, and more. And, the good news is that you really don’t need to hire the services of a tax specialist these days to help you find all of the deductions and credits you’re eligible for (although, if you really want to make sure you’re getting the most back, we definitely recommend hiring one).
Follow along as we walk you through a few financial tips that can help you file your taxes in order to receive the most money back from the government.
Financial Tips for Getting a Bigger Tax Refund
1. Think About Your Filing Status
If you’re married and usually file your taxes as “married filing jointly,” then it might be time to take a look at whether or not that’s actually paying off for you. Most couples file jointly because it’s a lot easier, but it doesn’t always make it the best option for either or both of you.
When might it make sense for you to file separately?
- If one spouse has a lot of medical expenses. In this case, it could make more sense for that spouse to claim those deductions on a personal tax return. The result could help them have a bigger refund check than if they filed jointly with the other spouse.
- If you have children together. This one is tricky, and in this case it’s probably best to speak to a tax professional, but the Child Tax Credit is fully refundable for 2021. Depending on how many children you have, and their ages, it might benefit you both to file separately and claim them on different returns to balance things out.
2. Deduct Charitable Contributions
Even if you don’t itemize, it still helps to deduct charitable contributions! How much can you deduct? A lot, actually! You can usually deduct up to 60% of your adjusted gross income provided that the donations you made to a qualifying charity were in cash.
NOTE: Remember that, to qualify for this deduction, you have to ensure that the non-profit organization is a 501(c)(3) public charity or private foundation. Most websites with financial tips for tax returns include this, but it often seems most taxpayers forget to double-check if the charity is eligible.
3. Claim Your Dependents
This one might seem obvious, but millions of people each year don’t understand who qualifies as a dependent that they can claim. No, this doesn’t just mean your children. But, claiming your dependent children does help increase your chances of a higher tax refund, though. A few things to note:
- The Child Tax Credit amount was increased this year to $3,000 per child over the age of 6 and $3,600 per child under age 6.
- On top of that, if you are the parent of a child that is physically or mentally incapable of taking care of themselves, the child and dependent care credit you can claim is now $8,000 for one qualifying individual or $16,000 for two or more qualifying individuals.
- If you had a baby in 2021, be sure to claim them on your 2021 tax return! The IRS has been making payments to parents all year through the American Rescue Plan Act. However, since you haven’t previously claimed that child yet (congrats, by the way!), you’ll be able to receive those payments at tax time.
4. Deduct Everything You Can!
Get ready for our best financial tip for tax returns: deduct everything! While most people take the standard deduction, you can actually deduct quite a lot more if you’re savvy on how to do so. Let’s run through a list of things you probably didn’t know you could deduct on your tax returns:
- Student loan interest. Due to new changes, the IRS will even allow you to deduct it if someone else paid the loan back for you (thanks, mom and dad!).
- Mileage for medical trips. If you or a family member has been receiving medical treatment this year, you might be eligible to deduct the mileage spent on traveling back and forth to receive the treatment. Click here to learn more about that and to see if you qualify or not.
- State income tax paid. If you had to pay state income tax last year, you can claim that this year!
- State sales tax. Uh, yeah, did you know that you can deduct your state and local sales tax on your tax returns? The IRS even has a handy calculator for it.
5. Max Out Your IRA Contributions
You don’t have to make contributions to your IRA account in 2021 to receive a deduction for it. You have until the 2022 Tax Day filing deadline (April 18th) to contribute in order to receive the deduction. How much can you receive? Up to the contribution limit. In 2021, that limit was $6,000. However, it’s wise to check your specific contribution and deduction limits as they do have cutoff points depending on your AGI.
6. Learn About Tax Credits
Repeat after us: tax credits are your friend. And, you might be missing more than a few of them! Look around and try to find all of the tax credits that you qualify for. According to US News, “One that’s frequently missed by homeowners is what they called the non-business energy credit…There’s also the solar credit, which for 2021 it was 26% and there’s no limit, and a few other energy credits.”
It’s important to note that a tax credit doesn’t necessarily directly increase your refund amount. It does, however, help you reduce your overall tax bill owed. So, it balances things out in the end and could lead to you having a higher refund amount!
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Taxes are confusing. Boy, do we get it. The last thing you need is for your banking to be confusing, too. Here at Cheese, we believe that your money should work for you and that you deserve to earn rewards when you spend.
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