Best Ways To Maximize Your Tax Refund
Best Ways To Maximize Your Tax Refund
- By: Frank Makrides
- Updated on January 14, 2021
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No one likes paying taxes. If anything you want to pursue all legal avenues and best ways to maximize your tax refund. In this article, you will find all the tools, the step-by-step, quick and simple ways to maximize the potential for your tax refund.
Contribute More To Retirement Accounts
One of the best ways to hit the jackpot when it comes to seeing a great tax refund this year is making sure you’re contributing all you can to your retirement accounts; whether you have an IRA or/and a Roth IRA accounts, you can put away a maximum of $6,000 across both account as of 2021.
If you’re over 50, you can add another extra $1,000 to these accounts bringing your overall total to $7,000 if you have that sort of money to invest in your retirement funds.
Which ideally you should!
IRA retirement accounts provide tax-advantaged investment savings and other benefits. Click here to learn more about investing in an IRA.
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Earned Income Tax Credit (EITC)
If you and your family bring in a small amount of money into the household every month (around about $30,000 – $50,000 annually as of 2013) then you could qualify for an EITC which could allow you a tax break; you are also able to use this credit to reduce the taxes you owe as well as to increase your overall tax refund.
Itemize Deductions And Online Deductions If Eligible
Taking an itemization deduction this year could give you a further increase on your tax refund as you are able to potentially pay less in taxes than if you were to use a standard deduction when calculating what you owe.
Some of the deductions you can itemize are:
• Mortgage interest
• Charitable contributions
• Medical expenses
• Gambling losses
• Investment interest
Though this is only beneficial to those people who have calculated what they owe and it totals to above $12,000 as it will be much cheaper to go with a standard deduction than an itemized one.
Child Care Deductions
The maximum amount of child care expenses you can claim is $3,000 for a single child, this goes up to $6,000 for two or more children in your care; this changes depending on if your employer gives you money for child care expenses.
In this case, you would have to subtract whatever money is being given from the previously outlined totals.
Charitable Contributions
If you made any charitable donations in the year, you can also get them deducted if you choose to itemize your deductions (instead of going with a standard choice which we talked about earlier), although there is about a 50% limitation on what can be deducted.
This however, depends on the type of donation made; i.e if it was money, property, food etc.
In this case, you would have to subtract whatever money is being given from the previously outlined totals.
Medical Expense Deductions
On top of charitable donations which you can deduct, you can also deduct any medical expenses which you paid in the calendar year, although this is only about 7.5% of your total gross income.
So it may not be a lot (based on how much you might have earned this year), which can be put towards something like a vacation or a new car rather than wasted on the government.
Health Savings Accounts
An HSA is a tax-advantaged medical saving account available to people who are enrolled in a high-deductible health plan or HDHP; any and all funds submitted to this account are not subject to income tax at the time of deposit.
Funds will roll over year upon year if they are not spent, which makes them different from flexible spending accounts.
Setting up an account like this will not only save you on the tax you need to pay, but will also ensure that you have money set aside for any unfortunate accidents in the future. You can pay for over the counter medication with the funds in this account.
Refinance
Refinancing can allow you to get a better deal than the one you’re currently signed to, usually relating to a mortgage or loan contract you’re currently a part of. Doing so can give you lower interest rates, a different payment schedule and other terms that could change in your favor.
Doing something like this can significantly reduce your total tax reductions; refinancing to a lower mortgage rate means you’ll be paying less interest, which means you’ll have less mortgage interest to deduct when tax time comes around.
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Capital Losses
A capital loss is a loss on the sale of a security or real estate investment.
A capital loss is divided by calendar dates into short and long-term losses.
Loses on your investment are initially used to offset capital gains of the same type.
Any short-term losses you have are deduced against the short-term gains you might have made, and the same would apply to long-term losses and gains.
Click the link to learn more about IRS Capital Gains & Losses
Click on the link for the IRS Schedule D (Form 1040 or 1040-SR)
How To Report Your Bitcoin And Other Virtual Currency Losses?
Just like with your other assets, you will need to report your crypto gains and losses to the IRS, in this case, the IRS form 8949.
For each taxable event, you’re going to want to calculate any gains or losses that particular transaction made.
Once you’ve filled out the lines on the form with all of your taxable events, you’re going to then want to sum them up and enter your total net gain or loss at the bottom.
Don’t fall into the trap that many Bitcoin investors do;
You MUST report your losses regardless.
Many people believe they only need to report their gains, but the IRS is very clear on the fact that you should report all of your cryptocurrency losses on your tax return.
Virtual currencies like Bitcoin come with specific tax rules. Please click the link to the IRS website for additional information.
Meet Tax Deadlines
The most important way, beyond everything else, suggested in this article, is just making sure you’re paying your taxes at the right time.
This will mean that you can ensure that you’re not going to get hit with any unnecessary fees along the way.
TurboTax Is Our #1 Rated Tax Partner
Reading the above information alone, there is so much that can go into doing your tax properly, ensuring that you are being as tax efficient as possible all the while making sure that you’re not missing anything important…or stressing yourself out.
A service like TurboTax can help take all of this stress out of doing your taxing, all the while ensuring that you’re doing them properly and efficiently.
And helping you to get the money back you deserve, a win-win all round.
#1 Rated Tax Software
Everyone needs to file their taxes one way or another. So when I want to take on the inevitable, I use TurboTax. It’s fast, simple and there is even a free option. If for some reason you need help, they even offer real CPAs or EAs that can help with advice or a line by line review. I have been using this software for years and I’m happy to recommend it to you.
Summary
As you can see, throughout this article, there are many ways you can maximize your tax refund, as well as ensuring just how you can become as tax efficient as possible so you can take advantage of all of the legitimate rules and regulations in place to work in your favor.
Rather than against you.
To reiterate a point we just made previously; sorting your tax out can be hard (and boring) thing to do, but it is very much necessary for everyone.
Something like this can be made easier if you use a service like TurboTax which will hold your hand through the whole process and ensure you’re doing everything correctly.
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Frank Makrides
Is a former financial technology industry executive, licensed realtor, real estate investor, an award-winning speaker, has been published, holds multiple patents and is passionate about all things personal finance and entrepreneurship. He is also a proud husband and father of 2 amazing children.
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