Tax season brings a lot of complications – not only do you have to calculate how much you owe in taxes for the past year, but you also want to maximize the amount of money you’re getting back from the government. And making the most of your taxes to score a refund is a tricky process.
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But once you know exactly what to look for in your financial records, you can get a great refund. How do I know? Because I’ve tried it.
Using a combination of different tax benefits, like credits, deductions, and investments, I’ve discovered a number of ways to maximize my own tax refund. And with these tips, you’ll be able to do the same. Here are the steps I took to maximize my refund in the past.
I Itemized My Business Expenses for Deductions
Deductions are one of the biggest ways to save on your taxes and add to your refund. The deductions you take determine how much taxable income you have left over, and ending up with a significant number of deductions can mean you’re getting more money back rather than having to hand over your hard-earned cash.
That’s why I choose to itemize my deductions. While it’s much easier to simply take the standard deduction – for 2018, that’s $12,000 for single filers and $24,000 for joint filers – itemizing can get you a bigger financial benefit come tax time.
Itemizing my deductions gets me a bigger reduction in income – or, to put it simply, I end up owing less in taxes. If you take the standard deduction, you might be missing out on money that could get you a bigger refund. And itemizing deductions means you can write off more of your expenses.
For example, I make sure to keep track of my business mileage each year. When I’m in my car driving for business, heading to meetings or clients, I take note of how many miles I’m traveling. Then, come tax time, I list that mileage as an itemized deduction. Since I travel approximately 200 miles per week for work, I’m able to use the current mileage rate of $0.545 per mile to calculate my deduction. And that gives me a deduction totaling $5,668.
I also make sure to itemize my business expenses like ink, office space rent, and cell phone bills. You can even deduct travel expenses, job search expenses, and any membership fees you pay for professional organizations or groups. Your business costs over the course of a year add up fast, and itemizing each of those expenses could net you thousands more in deductions on your tax return.
I Deducted My Medical Bills and Expenses
My business expenses aren’t the only deduction I itemize. It’s just one of many! Here’s another way itemized deductions can result in a bigger refund: you can deduct your medical expenses. That’s right, every medical bill you’ve paid over the past year can be deducted. So, I make sure to deduct my medical bills too.
The IRS allows taxpayers to deduct any medical expenses that exceed 7.5 percent of your adjusted gross income (AGI). With an AGI of $45,000, I was able to deduct a maximum of $3,375 in medical expenses – and with medical bills totalling $7,000, I was able to deduct $3,625 of my payments and bills to doctors and medical offices.
By itemizing your deductions, you too will be able to take the medical expenses deduction. And you could reduce your AGI by thousands of dollars, saving yourself money and increasing your tax refund.
I Contributed to Tax-Free Accounts
When it comes to getting a great tax refund, you need to reduce your income and owe less in taxes. Another easy way to reduce your taxable income is to contribute to tax-free accounts during the year so you’re able to slash your overall income.
There are plenty of ways to contribute to tax-free accounts. Your employer likely offers a few different kinds: health savings accounts (HSAs), an IRA or 401k, and flexible savings accounts (FSAs) are some common examples. Contribute to these accounts, and you’re able to deduct a significant amount of money and potentially increase your refund.
For example, I make an effort to contribute at least $5,000 per year into my IRA. Come tax time, the IRS allows me to deduct up to $5,500 of my IRA contributions – and at $5,000, I come in under the cap. So, I can take an extra $5,000 off of my taxable income.
Additionally, the IRS gives taxpayers a bonus credit just for contributing to a retirement account. If you contribute any money at all to a retirement account, you’ll get an extra $1,000 credit ($2,000 if you’re filing jointly). That brings my total to $6,000 in retirement deductions.
Contributing to a 401k, HSA, or FSA works in a similar way. Putting money in each of these accounts reduces your taxable income and gets you a deduction on your taxes. When I used to contribute to a 401k account, I decided to max out my annual contribution – and that action alone netted me over $4,000 in tax savings.
I Used Tax Credits
Beyond deductions, you and your tax refund can benefit greatly by taking advantage of tax credits. Tax credits take money right off your tax total, and they could put money right into your refund check if you end up owing very little.
For example, qualifying for an educational tax credit when I was still attending a university netted me a credit of $2,000. That credit saved me $2,000 in owed taxes, and because I’d been paying taxes all throughout the previous year, it added to my refund. A tax credit can either directly boost your refund or lower the amount of taxes you owe, giving you a leg up.
These are the tax credits that I consider, and you can consider them too:
- Earned Income Tax Credit – gives a credit to impoverished families and working individuals.
- Child and Dependent Care Credit – get up to $3,000 in expenses for a dependent or child back by credit.
- Child Tax Credit – get a credit of up to $2,000 per child in your home.
- Premium Tax Credit – reduces the cost of your premiums if you’ve purchased health insurance through the federal healthcare exchange.
You might also, if you’re a homeowner, be able to qualify for tax credits if you made energy efficient home improvements. And if you or one of your dependents has educational expenses, you might be able to get a credit or two from the IRS.
Ultimately, the key to maximizing my tax refund each year is the very same one you can use: know the current tax law and understand how you can use deductions, credits, and other financial information to reduce your overall income and increase the money you get back. Make sure to stay informed by researching the latest tax tricks, updates, and laws. That’s the only way to ensure you’re getting the most up-to-date information to make the most of your refund.