Though not everyone who files a tax return gets a refund from the IRS, the majority of filers do. And this year, that money may come in even more handy than usual.
Many households have lost income or incurred extra expenses in the course of the coronavirus pandemic, so an influx of cash could be especially useful during these trying times. And if you play your cards right, you might manage to snag an even higher refund this year than you’ve gotten in the past. Here’s how.
1. Claim the right credits
There are a number of lucrative tax credits that could put extra money back into your pocket, so knowing which ones to claim is crucial. If you’re a low or moderate earner, see if you’re eligible for the Earned Income Tax Credit. If you have kids under the age of 17, be sure to sign up for the Child Tax Credit, which could pay you up to $2,000 per eligible dependent. And if you never got a stimulus payment but were eligible, don’t hesitate to claim that cash via the Recovery Rebate Credit.
2. Take the right deductions
Deductions exempt a portion of your income from taxes, and they can really add up to a nice amount of savings. You’ll need to itemize on your return to claim a number of popular deductions, like mortgage interest, the state and local tax (SALT) deduction, or medical expenses. But there are some deductions you can claim this year even if you don’t itemize on your return.
For example, depending on your income, you may be eligible to deduct the interest you paid on student loans last year. If you’re a teacher, you can deduct up to $250 in educator expenses. And for the 2020 tax year, you can actually claim a deduction of up to $300 for charitable contributions. Normally, a deduction for charitable donations is limited to filers who itemize, but an exception has been made for 2020 as well as 2021.
3. Put more money into your 2020 IRA
When you contribute to a traditional retirement plan (not a Roth account), that money effectively serves as a deduction, because it’s earnings the IRS can’t tax you on. At this point, it’s too late to contribute more money to last year’s 401(k) plan. However, you have up until the April 15 tax-filing deadline to sneak more money into last year’s IRA, so if you haven’t maxed out that account, now’s the time to do so. You can put up to $6,000 into your 2020 IRA if you’re under 50, or contribute up to $7,000 if you’re 50 or older.
A more generous refund could be yours
Getting a robust tax refund this year could buy you some financial breathing room at a time when you might really need a windfall. Follow these tips to boost your refund, but also get moving on your tax return. Though the 2021 tax-filing season only recently kicked off, the sooner you submit your return, the sooner you can expect your refund to get processed and hit your bank account.