How to get a bigger tax refund
Are you doing your taxes this holiday weekend? As of April 8, the Internal Revenue Service has processed nearly 100 million individual tax returns for the 2021 tax year and issued more than 70 million refunds. The average reimbursement: $3,175.
Here are some last-minute tips on how to get a bigger tax refund, including new or expanded special tax breaks and valid only for 2021 tax year returns due this year on Monday the 18th. April 2022 for most taxpayers. Taxpayers in Maine and Massachusetts have until April 19 because of Patriots Day. Taxpayers in certain disaster areas have until May 16 or June 15. And anyone can apply for an extension until October 17. Just be sure to estimate your tax liability and pay any amounts owing by the April 18 filing deadline to avoid penalties and interest.
Take advantage of special tax relief for charitable contributions. For people who benefit from the standard deduction – that is nine out of 10 taxpayers – there is special tax relief to make cash gifts to charity for 2021. Usually, taxpayers can only claim a charitable donation deduction if they itemize the deductions. But under this special law, people who don’t itemize can deduct up to $300 and a married couple filing jointly can deduct up to $600 for charitable donations made by cash, check or debit card. credit. The deduction reduces both adjusted gross income and taxable income, resulting in tax savings for those who donate to qualifying tax-exempt organizations. So scan your 2021 credit card statements. If you’ve made monthly donations to the ASPCA, for example, or made a one-time donation in memory of a deceased loved one, those donations count, up to the $300/$600 limit.
Maximize retirement savings and healthcare accounts. How does saving money get you a bigger refund? Contributions to pre-tax accounts reduce your taxable income. You can contribute to an Individual Retirement Account and/or a Health Savings Account and the contribution counts for the previous tax year up to tax day. Individuals can contribute up to $6,000 to an IRA, plus an additional $1,000 if you’re 50 or older, for the 2021 tax year. Contribution limits for HSAs, available if you had a plan high-deductible health insurance plans are $3,600 for single coverage and $7,200 for family coverage, plus an additional $1,000 if you’re 55 or older. For low-income taxpayers, another incentive to save for retirement is the $1,000 savings credit. A credit reduces taxes dollar for dollar, making it more valuable than a deduction.
Do you have children? Find out about the enhanced credit for child care and dependent care. If you paid a day care center or other “qualified” caregiver to care for your children (under the age of 13) so that you and/or your spouse could work, you may be eligible for an enhanced credit for children and dependents. This is different from the Advanced Child Tax Credit which was paid out as monthly payments in the second half of the year to most families with children and is verified on your 2021 tax return. This is also different from the benefit of flexible spending account for dependent care you may have through work – if you have one of these accounts, use it first, then apply any child care costs additional children to claim the credit.
For 2021, Congress sweetened the child and dependent credit: a maximum credit of $4,000 for one child in care and $8,000 for two or more. Taxpayers whose adjusted gross income does not exceed $125,000 are eligible for the full credit, which decreases until it reaches $438,000 of adjusted gross income. The 2021 changes also made the credit refundable, which means that even if you owe no tax, the credit will be paid to you as a refund. The National Taxpayer Advocate has more details on the changes to this important family tax credit. Note that this applies not only to children, but also to other dependents such as elderly parents.
More taxpayers are eligible for the earned income tax credit. Congress made permanent changes — and temporary changes for 2021 — to the EITC, which helps low-to-moderate income taxpayers. An example of a permanent change: The maximum amount of investment income such as interest and dividends that a taxpayer can earn while qualifying for the credit has increased from $3,650 to $10,000. A temporary change for 2021: more taxpayers are eligible, including those over 65 without children and taxpayers as young as 19. And you can use your 2019 earnings to qualify if they result in a larger tax credit. The National Taxpayer Advocate has advice on how to avoid mistakes when applying for the EITC and what to do in the event of an EITC audit.
Tax Day 2022: 5 steps to a faster tax refund
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