With each tax season comes the hope of a substantial refund, or at least the chance of not owing too much in taxes. So, how can you be sure you are getting back as much as you should? With the many new changes to deductions and other tax laws made in recent years, it can be difficult to navigate the complexities of a tax return, especially when attempting it on your own.
While you’ll likely hear a great deal of information through media channels and on the Internet detailing how you can get more money back, you should first consider these 5 ways to maximize your tax refund.
1. Choosing the Itemized Deduction over Standard Deduction
When preparing your taxes, you have the option of choosing either the itemized deductions or the standard deduction to lower the amount of taxable income. The Tax Cuts and Jobs Act (TCJA) has made it more difficult to itemize, eliminating or restricting many items. It also raised the standard deduction amounts for 2019:
- $12,200 for individual filers
- $24,400 for joint returns
- $18,350 for heads of household
However, it might still be beneficial to choose to opt for the itemized deductions if, for example, you have a high amount of medical expenses and/or charitable contributions to claim.
Be sure to save and organize all your receipts and records of medical expenses, taxes, & charitable contributions. Significant amounts can work in your favor.
Note: Consider “bunching” charitable contributions. Donate your yearly amount every two years to maximize the itemized deduction.
2. Save Money for Medical Expenses Through a Health Savings Account
A Health Savings Account (HSA) is designed to help you save money for future medical expenses. Any money contributed to an HSA for the year can be claimed as an expense, reducing your taxable income.
The money contributed to an HSA is typically pre-tax when done through an employer, or post-tax when done on your own. Individuals seeking to set up an HSA on their own can do so at any financial institution.
Note: The limit for claiming HSA contributions for 2019 is $3,500 for individuals and $7,000 for families.
3. Build Retirement Savings
Aside from ensuring you build your retirement savings, contributing to qualifying retirement plans also has tax benefits. Like contributions made to an HSA, contributions made to retirement plans can also be claimed and serve to reduce your taxable income. Also similar, you can contribute pre-tax through participating employers or post-tax on your own to a financial institution.
Note: Contribution and income limits do apply for certain types of plans.
4. Education Expenses
The IRS allows various education-related expenses to be used in calculating your deductions. These expenses include:
- Tuition paid to post-secondary education
- The cost of books and supplies needed for the course of study
- Fees and other related expenses, such as student activity fees, required for enrollment or attendance at an eligible educational institution
- Interest on student loans (with limitations)
Costs associated with room and board, medical expenses, transportation, and insurance do not apply.
Note: Income limits and limits of deductions/credits do apply, and expenses for an academic period must be claimed during the tax year that the academic period begins.
5. Seek Help if Necessary
As mentioned above, navigating and learning all the new tax laws, understanding limits, and ensuring you’ve deducted everything correctly in order to maximize your tax refund can be difficult. That’s why it’s recommended that you seek assistance from a qualified tax professional. They will possess the knowledge needed to help you identify deductions or credits that you might have otherwise missed.
Additionally, many tax laws also have last minute changes throughout the course of the year and even during tax season. Tax professionals can consult on more complicated tax issues as they arise, and help you better prepare for future tax years.