While preparing tax returns is not the most enjoyable of propositions, the prospect of a tax refund, especially if it is a big one, can make it worthwhile. And to maximize your income tax refunds, we would need to be both smart and judicious in the way we go about it. And take advantage of every tax credit we are eligible for.
Further, we want to be sure that no errors creep in on our tax forms that could end up costing money instead of bringing in some. To get around this, some strategies ensure that we get the biggest possible tax refund in 2023.
Determining The Correct Filing Status
The amount of your Tax Refund amount is linked to your filing status and also your income threshold for multiple deductions and credits. Your filing status, the one you opt for if you have a choice, could have a significant effect on your tax refund.
For example, a person may file as a qualifying widower or widow for two years even after the demise of their spouse. This status thus nearly doubles the standard deduction someone would claim if they filed their income tax return as an individual following the death of their spouse.
The option to file individually or jointly as a couple is also available for married couples. And in an overwhelming majority of cases, it would be advantageous for married couples to file jointly. Only on very rare occasions filing individually will save a married couple some tax money. For instance, if one of the spouses has high medical expenses that they would prefer itemizing, the couple’s combined income might make it difficult to opt for itemization.
The Importance Of Dependent Care Expenses
Families who claim children as dependents on their income tax return are eligible for a Child Tax Credit of $2,000 per child. This was expanded to between $3,000 and $3,600 in the 2021 tax year, payable in 2023.
The plan to continue with the higher structure was part of President Biden’s plan when he made it a part of the American Rescue Plan Act that he signed in march 2021, immediately after he assumed power a few weeks earlier. But political intransigence by the Republicans stymied his plans.
But at $2,000 a child, it is still a substantial tax refund amount and you would not want to miss out on the chance to be given an additional tax credit for your daycare expenses. Depending on your income, you may be in line for a tax refund worth up to 35% of the $3,000 spent on qualifying care for a child and double that for the qualifying care for two children and above.
The qualifying expenses you are eligible for can include school programs and after-school programs, daycare expenses, sports camps, and summer day camps, though overnight camps are excluded from this list. To qualify for this tax refund, the care should be provided and linked to your need to work.
Most taxpayers claim this credit for their children aged twelve and below. This fund can also be claimed for elderly patent and older disabled children.
Itemizing Deduction Saves Taxes
Standard deductions in America were significantly increased with the 2017 Tax Cuts and Jobs Act. It went up to the point where taxpayers almost gave up itemizing. But if you have significant contributions to charity or substantial medical expenses, it would be worthwhile to investigate if you could instead end up saving money through itemizing your deductions.
It might not make sense to itemize in any particular year. But you can then consider whether you can itemize your spending in such a way that you can do so subsequently in a future year. Bringing together charitable contributions of several years into a single year is one of the most common ways to do so.
You can create a donor-advised fund to take care of this. Through it, taxpayers can make a large initial deposit that is dedicated to charitable spending. This deposit will then be itemized on Income Tax Refunds. But the funds will get distributed to charities over a substantial period spread over several tax years.
Spending On Retirement Funds
Retirement funds have turned out to be a major way for taxpayers to save tax money and increase their tax refund amount. Some of the best ways to maximize the refunds are by contributing to the pre-tax account.
One of the best ways to maximize tax refunds is to contribute to pre-tax accounts. While it is not possible to save on the Tax Refunds in 2023 by contribution to the workplace 401(k), there is still time to fund an IRS right up to the date of the tax filing, which falls on April 18 this year. For taxpayers younger than fifty years, they have the option of contributing a maximum of $6,000 to an Individual Retirement Account for the 2022 tax year. The limit increases by $1,000 for those aged fifty years and above.
But you need to ensure that your contribution goes to a traditional retirement account. Contributions made to both accounts are not income tax-deductible, though these accounts have tax benefits of their own.
Further, for people having a retirement plan at the workplace, including a 401(k), the ability to deduct IRS contributions starts to phase out both for heads of households and single filers once their AGI touches $68,000. For joint filers and qualifying widows or widowers with workplace plans, the full contribution deduction can only be accessed by those with an income of $109,000 or below.
Health Saving Account Can Max Out Your Contributions
Those with qualifying health insurance plans that are high deductible, they can save on taxes by transferring regular funds to a health savings account. Taxpayers can utilize such accounts to park money for future medical expenses.
Such contributions are deductible. Withdraws are exempt from taxes and the account is grown tax-free when used for qualifying expenses.
Similar to a traditional IRS, these deductible contributions to any health insurance plan can be made through the tax filing deadline. For the present tax year, the qualified family plan can withdraw $7,300 from HAS contributions. Filers with an individual plan can deduct a sum of up to $3,650.
