THIS IS THE TIME OF year many taxpayers are thinking about filing their taxes to get their tax refunds. Nearly 72% of taxpayers received a tax refund last year, and the average direct deposit tax refund was close to $3,000 last tax season, according to the IRS. However, some filers may feel like their refund was a little low.
Whether you received the tax refund you deserved or think you could have gotten back more last year, here are five tips to help you maximize your tax refund this year.
Don’t Take the Standard Deduction If You Can Itemize
Under the new tax law, more people may take the standard deduction instead of itemizing because the standard deduction nearly doubled ($12,200 for single filers and $24,400 for married taxpayers filing jointly) and some tax deductions were either eliminated or reduced. In fact, TurboTax estimated and IRS confirmed that about 90% of taxpayers claimed the standard deduction instead of itemizing their tax deductions in tax year 2018, up from about 70% before the new tax law.
Although more taxpayers will claim the standard deduction as a result of the changes, and the standard deduction will help lower your taxes, you may find you can still itemize your deductions to get a bigger tax refund if you take a little time to gather up some of your receipts. If you are close to the standard deduction thresholds, don’t forget about some additional expenses that may push you over the standard deduction. These expenses include qualified charitable contributions, casualty and theft losses if they are a result of a federally declared disaster, gambling losses up to gambling winnings and points paid on a new mortgage or refinanced home loan.
Claim the Friend or Relative You’ve Been Supporting
If you have been supporting your friend, significant other or relative, you may be able to claim him or her as a dependent. There are some rules regarding who qualifies, but the deduction is legitimate if your non-relative has lived with you the entire year (relatives don’t need to live with you), doesn’t provide more than half of his or her own support and doesn’t earn more than $4,200 in taxable income in 2019. Although you can no longer claim the dependent exemption under tax reform, there is a new tax credit for non-child dependents worth up to $500.
Take Above-the-Line Deductions If Eligible
Above-the-line tax deductions allow you to reduce your taxable income without itemizing. Examples include if you are a teacher and paid for your students’ school supplies, went back to school to land that promotion, paid alimony in 2019 (if your divorce was final before 2019), pay self-employment tax, paid student loan interest, contribute to your IRA or had unreimbursed moving expenses if you are active-duty military. The reduction to your taxable income may also help you get a bigger advanced premium tax credit if you received assistance to help pay for insurance in the health insurance marketplace.
Don’t Forget About Refundable Tax Credits
A tax credit is a dollar-for-dollar reduction of the tax you owe, and a refundable tax credit will allow you to have a credit beyond your tax liability. The earned income tax credit is worth up to $6,557 for a family with three or more children. One out of five taxpayers who are eligible for the credit fails to claim it, according to the IRS. Some taxpayers miss this valuable credit because they are newly qualified due to changes in their income. Or they chose not to file their taxes if their income is below the IRS income-filing threshold ($12,200 if you’re single or $24,400 if you’re married filing jointly).
Contribute to Your Retirement to Get Multiple Benefits
You have until the filing deadline to make a 2019 contribution to your IRA and reap the benefits of a tax deduction of up to $6,000 ($7,000 if you are 50 or older). In addition to this deduction, you may qualify for the saver’s credit. This is the only time the IRS allows you to double-dip. The IRS gives you an additional credit of up to $1,000 ($2,000 for married filing jointly) if you contribute to your retirement.
These tax tips will help you maximize your tax refund and allow you to spend it wisely whether you are paying down debt, saving it for a rainy day or building up your nest egg.