For information on the third coronavirus relief package, please visit our “American Rescue Plan: What Does it Mean for You and a Third Stimulus Check” blog post. Show
Boosting your tax refundWhile Americans may disagree on how the government spends their taxes, at tax time, many of us are looking for ways to pay no more than we owe — or even boost our tax refunds. These strategies go beyond the obvious to give you tried-and-true ways to reduce your tax liability. 1. Rethink your filing statusOne of the first decisions you make when completing your tax return — choosing a filing status — can affect your refund's size, especially if you're married. While approximately 96% of married couples file jointly each year, a joint return is not always the most beneficial option.
Choosing to file separate returns can have its drawbacks, such as losing certain deductions and credits available to joint filers. You'll need to weigh this carefully to maximize your refund potential. Also, both spouses must take either the standard deduction or itemize their deductions. You can’t mix-and-match between the two returns.
Unmarried taxpayers who claim a qualifying dependent can often cut their tax bills by filing as Head of Household if they meet the requirements.
Many taxpayers who care for elderly parents don't realize they can claim Head of Household status. If you provide more than half your parent’s financial support — even if your parent doesn’t live with you — you can likely file as Head of Household. 2. Embrace tax deductionsMany deductions exist that you may not be aware of, and several of them are pretty commonly overlooked. The deductions you qualify for can make a significant difference on your tax refund. They include:
For 2021 only: For tax year 2021, the American Rescue Plan brings significant changes to the amount and way that the child and dependent care tax credit can be claimed. The plan increases the amount of expense eligible for the credit, relaxes the credit reduction due to income levels, and also makes it fully refundable. This means that, unlike other years, you can still get the credit even if you don’t owe taxes. Also for tax year 2021, the maximum amount that can be contributed to a dependent care flexible spending account and the amount of tax-free employer-provided dependent care benefits is increased from $5,000 to $10,500.
It’s important to keep good records for your deductions especially when you don’t receive some type of receipt as with some charitable contributions and charitable or medical miles. Nothing fancy is required — even a spiral notebook in your glove compartment is fine. Make sure to keep track of:
3. Maximize your IRA and HSA contributionsYou have until the filing deadline (unless it's delayed due to a weekend or holiday) to open or contribute to a traditional IRA for the previous tax year. That gives you the flexibility of claiming the credit on your return, filing early and using your refund to open the account.
Pre-tax contributions to a Health Savings Account (HSA) can also reduce your taxable income. You can make these up until the filing deadline as well. Certain requirements must be met in order to open and contribute to an HSA:
You won’t be able to participate in an HSA if any of the following are true:
Read this article to learn more about HSA requirements and how these accounts work. 4. Remember, timing can boost your tax refundTaxpayers who watch the calendar improve their chances of getting a larger refund. Look for payments or contributions you can make before the end of the year that will reduce your taxable income. For example:
5. Become tax credit savvyTax credits usually work better than deductions as refund boosters because they're a dollar-for-dollar reduction of your taxes. If you get a $100 credit, you get $100 off your taxes. Many Americans leave money on the table when it comes to claiming tax credits.
The Consolidated Appropriations Act (CAA) was signed into law on December 27, 2020 as a stimulus measure to provide relief to those affected by the pandemic. For tax year 2020, the CAA allows taxpayers to use their 2019 earned income if it was higher than their 2020 earned income in calculating the Additional Child Tax Credit (ACTC) as well as the Earned Income Tax Credit (EITC). For 2021, taxpayers can use either their 2021 or 2019 income to maximize the credit. If you're a college student or supporting a child in college, you may be eligible to claim valuable education credits.
Tax credits for energy-saving home improvements can also keep more money in your wallet throughout the year and at tax time.
Let an expert do your taxes for you, start to finish with TurboTax Live Full Service. Or you can get your taxes done right, with experts by your side with TurboTax Live Assisted. File your own taxes with confidence using TurboTax. Just answer simple questions, and we’ll guide you through filing your taxes with confidence. Whichever way you choose, get your maximum refund guaranteed. Is a tax refund taxable?In general, state and local income tax refunds are taxable if the refunded tax was deducted in a prior year and you received a tax benefit from the deduction. Refunds are partially taxable if your itemized deductions last year exceeded your standard deduction by less than the amount of the refund.
What is the downside of a tax refund?You're not keeping that money within your own decision-making powers. Sure, it'll come back when you file taxes and receive your refund, but for many months out of the year, that money has not been working on your behalf for things like your investments, savings goals, or debt payoff.
What happens to tax refund?Whether you owe taxes or you're expecting a refund, you can find out your tax return's status by: Using the IRS Where's My Refund tool. Viewing your IRS account information. Calling the IRS at 1-800-829-1040 (Wait times to speak to a representative may be long.)
Does tax refund mean I get money?A tax refund is a reimbursement to taxpayers who have overpaid their taxes, often due to having employers withhold too much from paychecks. The U.S. Treasury estimates that nearly three-fourths of taxpayers are over-withheld, resulting in tax refunds.
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