Every year, millions of Americans undertake the painstaking process of filing their tax returns, all with fingers crossed in the hope that the government will owe them a big, fat check. For well over 100 million of them, that wish is granted.
But what if we told you that your tax refund could be even bigger? The truth is that what you get back on your taxes can be largely within your control. And you don’t have to wait until tax time to make a refund happen.
Unhappy with your tax return this year? Check out these moves you can make to boost your bank account.
Following are several ways to increase your tax refund the next time you file a return.
Increase your tax withholding
Your W-4 — the form you fill out when you start a new job — determines how much income tax is withheld from your paychecks. If you revise your W-4 so that more income tax is taken out during each pay period, you might net a larger refund next year.
Just remember that you’ll have smaller paychecks in the meantime. So, view this as a year-long savings strategy of sorts and budget accordingly.
Max out your IRA or 401(k) contributions
Speaking of saving, contributing to an IRA or 401(k) is one of the best ways to grow your wealth that pays off at tax time and when you retire.
In tax year 2022, taxpayers can invest up to $6,000 in a traditional IRA, and many can then turn around and deduct that amount on their federal tax return. For a 401(k), the maximum you can contribute is $20,500. You’re (hopefully) planning for retirement anyway, and this is a way to boost your refund at the same time.
Claim the saver’s credit
You might be eligible for the saver's credit if you meet IRS income guidelines and contribute to a qualifying retirement vehicle.
This credit is worth up to $1,000 for single filers and up to $2,000 if you’re married filing jointly, but that’s not even the best part: You can deduct your IRA contributions and claim the saver’s credit in the same year. It’s a win-win.
To be eligible for at least some type of saver’s credit in tax year 2022, you cannot make more than $68,000 if you are married filing jointly or more than $34,000 if you are filing as a single person.
Review your filing status
Taxpayers may have some flexibility with their filing status. The option they choose can have a direct impact on their tax refund.
For example, if you’re married, you and your spouse could file taxes together or separately. If you’re single with dependents, you could opt for the head of household filing status. You might also be able to file as a qualifying widow(er) if your partner recently passed away.
Each filing status has its own advantages and disadvantages. Explore your options to see which one nets you the bigger refund.
Claim the Earned Income Tax Credit
The Earned Income Tax Credit (EITC) helps working families, but you may qualify for this tax break even if you do not have dependent children.
As long as you meet the income limits for the EITC, you may be eligible for a credit that can total several thousand dollars. However, roughly 20% of eligible taxpayers neglect to claim this credit, according to the National Conference of State Legislatures
Write off expenses for your side hustle
You don’t need to own a multimillion-dollar corporation to take advantage of business tax deductions.
Whether you’re delivering food, selling handmade crafts on Etsy, or reselling on eBay, you may be able to write off qualifying business expenses and lower your tax bill. Start tracking these expenses now. Doing so might net you a bigger refund.
Start a side hustle
If you don’t have a side hustle, now might be a good time to start one and earn some extra money.
You don’t have to invest a ton of time into your business or pay to form an LLC, either. Let’s say you want to wash cars for extra cash. You can do so however often you like, and this business activity automatically grants you sole proprietor status.
Any expenses you incur as a self-employed car washer this year — including startup costs — could help you out during the next tax-filing season, possibly even generating a bigger refund.
Itemize your deductions
Many taxpayers opt for the standard deduction, but it could be costing you money.
The standard deduction amount varies with your filing status. The 2022 standard deduction ranges from $12,950 for single taxpayers to $25,900 for married couples filing jointly. If you are 65 or older, the deduction is even higher.
If your other deductions exceed those figures, however, consider itemizing instead. It’ll take a little more elbow grease on the front end, but you could make out with a larger refund on the back end.
Claim your dependents
Minor children aren’t the only dependents you can claim on your taxes.
You can actually claim your kids until they’re 19 years old, or 24 if they’re in school. You can also claim children of any age if they’re permanently disabled. Parents and siblings may count as dependents, too. You might be able to claim someone in your household as a dependent even if they are not related to you.
If you support someone else financially, find out if they’d be considered a qualifying dependent. The worst-case scenario is that you can’t claim them. But the best-case scenario is that you could see a bigger refund.
Look for lesser-known credits
You might think that the EITC or the saver’s credit are the only credits available to you. That could be far from the truth, however.
The IRS offers tax credits and deductions for education, health care, adoption, homeownership, and even some investments. Take your time researching these credits. You just might find that you’re eligible for greater tax savings than you realized.
Many people think that their tax refund is an arbitrary number that only the IRS or an accountant can influence, but that’s not the case. The decisions you make right now can directly impact what you get back next year, for better or worse. If you don't want to wait for next year's return for a boost in cash, here's how you can increase your wealth now.