It’s hard to believe that tax filing season is just around the corner. In a few short weeks, millions of Americans will be busy organizing their tax returns. Although the year is nearly over, there are a few things you can do right now to help you get back more money. Simply follow these 10 easy ways to potentially increase your tax refund in 2021.
Increase Your Withholding
When you started your job, your employer had you complete a Form W-4. The information on that form determines how much money is withheld from your paycheck and paid toward your taxes. If you want to see a bigger refund, go to your human resources (HR) department and adjust your withholding to zero. This will result in a larger amount of taxes being taken from your final 2020 paycheck. It’s an easy way to increase your tax refund, but don’t forget to adjust your W-4 again in January.
Donate to Charity
Thanks to the Coronavirus Aid, Relief and Economic Security (CARES) Act, you can take an additional $300 tax deduction for qualified charitable contributions made before December 31. This special tax break is for cash donations made to eligible nonprofits. It reduces both your adjusted gross income and taxable income when taking the standard deduction, thereby reducing your tax liability.
Make January’s Mortgage Payment Now
If you itemize and own a home, consider making your January mortgage payment before the end of 2020. Why? You’ll be able to deduct the interest on your 2020 tax return and reduce your taxable income. Just remember that if you take it on your 2020 return, you won’t be able to claim it the following tax year.
Prepay 2021 College Tuition
Are you planning to take college classes next year? Pay your spring tuition before December 31 and you may be eligible to take an education credit (American Opportunity Tax Credit or Lifetime Learning Credit) on your 2020 tax return.
Increase IRA Contributions
An easy way to increase your tax refund is to maximize your retirement fund contributions. For 2020, you can deduct up to $6,000 (or up to $7,000 if you’re 50+) in IRS contributions from your taxable income.
Go Green to Get More Green
Thinking of upgrading your home with some green technology? Thanks to the Residential Renewable Energy Tax Credit, you can claim a tax credit of up to 26% of the total cost of any eligible projects completed during 2020. This includes solar panels, solar water heaters, geothermal heat pumps, and small wind turbines. You can also get a tax credit of up to $7,500 when purchasing an electric vehicle before the end of the year.
Schedule Medical Exams
If you’re already racking up medical bills in 2020, be sure to schedule any outstanding exams or procedures before the year ends. You’ll need to pay the bills by December 31 and itemize deductions, but you can deduct any unreimbursed allowable expense that exceeds 7.5% of your adjusted gross income. Eligible expenses include contact lens, acupuncture, blood work, medical devices, x-rays, and much more!
Claim the Earned Income Tax Credit
The Earned Income Tax Credit (EITC) is for working people with low to moderate incomes. Even if you don’t owe taxes or aren’t required to file a return, EITC reduces the amount of taxes you owe and may result in a refund. The average amount received in 2019 was $2,476.
Reconsider Your Filing Status
As you age and your financial circumstances change, it may be beneficial to reconsider your tax filing status. For example, a married couple may get a better tax break filing separately if their incomes are similar or one has large medical bills. Do not assume that filing jointly will always result in the best tax advantages. Run the numbers to see which filing status is best for your specific situation.
Hire a Tax Professional
One of the best ways to ensure you get the biggest tax refund possible is to hire a tax professional. At Tax Defense Network, our licensed tax experts can not only help you take advantage of available tax credits and deductions this year, but also help you plan ahead for future tax years. To learn more about our affordable tax preparation services, schedule a free consultation today!