withComing up on April 18, 2023, you might be looking for ways to reduce your tax liability. however, With various pandemic-related tax benefits expiring, that could mean some people will get smaller refunds this year.
But that doesn’t mean you can’t find a way. With strategic planning and a thorough tax filing process, you can maximize tax-saving opportunities and potentially receive a refund from the government. You can get your taxes done right – and get the most refund – by filing with TurboTax now.
5 Smart Ways to Maximize Your Tax Refund
In particular, consider steps such as the following:
Choose the best filing status
The first step to maximizing your tax refund is choosing the best filing status. It can be one of five options:
- Married filing jointly
- Married filing separately
- the head of the family
- Eligible widow(er) with dependent children
You may not always have the ability to change your filing status, as you only qualify as a single filer. But perhaps you didn’t realize that you qualify as head of household, for example, in which case you can take advantage of a larger standard deduction among other tax benefits.
Or, you may find that you can reduce your taxable income by using the higher limit for married filing jointly, for example, compared to married filing separately.
That said, some filers find that filing taxes separately from their spouse makes them eligible for more tax deductions, such as if a spouse has more medical expenses for the year and can deduct the deduction. See what makes sense for your situation.
You can file your taxes online right now in less than 15 minutes.
Itemize deductions where possible
If you are able to itemize deductions, you can reduce your tax liability more than if you took the standard deduction. While you don’t want to spend unnecessarily just to itemize, there are probably more cost-cutting opportunities than you realize.
For example, you can deduct the interest you pay on a mortgage (for the first $750,000 owed if married filing jointly). So, if you recently bought a home, you can start itemizing your taxes.
Another common itemized deduction is charitable contributions. If you don’t have enough expenses to itemize, a tip from Amy Hamasaki, owner and principal planner at Mountain Wealth Planning, is to batch them.
“Instead of making small donations annually, make one big donation every few years,” she says
Take advantage of the new tax credit
Even if you don’t itemize your taxes, you should still take tax credits if applicable. Doing so can reduce your tax liability on a one-to-one basis, ie, if you pay $3,000 in tax but then claim a $1,000 tax credit, you’ll only owe $2,000.
Note that many tax credits are not refundable. That means if your tax credit reduces your tax liability below zero, you won’t get a tax refund unless the credits are refundable, but you can at least avoidIn this scenario.
Tax credits change often, so check to see if there are new ones that qualify for you. Or, you may want to start planning now to take tax credits next filing season. For example, for tax year 2023 (meaning it will affect the following year’s tax filing season), taxpayers can take advantage of more environment-related credits from the Inflation Reduction Act.
Loreen Gilbert, CEO and founder of WealthWise Financial Services, points to new or increased tax credits for things like buying an electric car, installing an electric heat pump or adding solar panels to your home.
“These new tax credits are for about eight to 10 years, so people have time to plan ahead,” she says “Before buying any item make sure you double check the tax credit and you will be eligible for it.”
Take advantage of healthcare savings accounts
To save on health care costs in addition to saving on income taxes, both Gilbert and Hamasaki recommend contributing to a health savings account (HSA).
With an HSA, if you have a high-deductible health insurance plan based on IRS requirements for a given tax year (eg, a minimum deductible of $1,500 and a maximum annual deductible and out-of-pocket expenses of $7,500 for self. 2023 only coverage for), then you can make pre-tax contributions, thereby reducing your taxable income.
Then, that money can be tax-free, and you can withdraw it tax-free while using the funds for qualified health care expenses.
Similarly, if your workplace offers a Flexible Spending Account (FSA), you can set aside pre-tax money each year for qualified health care expenses. However, FSA funds have limited year-to-year rollover ability.
But with careful planning, you can reduce your taxable income through such accounts, which can ultimately increase your tax refund.
Maximize retirement contributions
Another way to maximize your tax refund while saving for the long term is to maximize retirement contributions. Such as by keeping money in an accountor You can reduce your taxable income while growing your retirement portfolio.
The more you save in accounts you qualify for, up to the relevant maximum (eg, $22,500 for 401(k)s for tax year 2023), the more tax you save.
Note that the actual savings depend on your tax rate, as these contributions are generally counted as deductions, not tax credits. However, if you are below certain income thresholds to qualify for the Retirement Savings Contribution Credit, you may receive a partial tax credit.
You can maximize your refund when you file online with TaxSlayer or use the table below to start exploring some online tax preparation services that can help you now.
While these are some of the best ways to reduce your tax liability and possibly increase your tax refund, remember that there are many other ways to increase your tax return this year and in the years to come.
That said, you don’t necessarily want to be overly fixated on tax credits, tax deductions, and maximizing your tax refund.
“Don’t let the tax tail wag the dog, meaning that even if you’re able to lower your tax bill in a given year, it could hurt your net worth over time,” says Hamasaki.
For example, buying something you can barely afford to qualify for a tax break may not always be a smart financial decision.
You might want to aim for no tax refund, “since it’s essentially an interest-free loan to the U.S. Treasury,” Hamasaki said. Instead, he says, try to figure out what your tax liability will be and adjust your withholdings, such as through your W4, so you pay the correct amount.
That said, while you’re going through your tax filings or preparing for next year’s tax return if you can find reasonable ways to save on taxes and help yourself in other areas, such as saving on health care costs through an HSA, it could be in Worth looking for. Consider speaking with an accountant or other qualified personSee a professional to see what you can do to optimize your tax return.