The easiest way to get a bigger tax refund next year is to increase your withholding. To do that, simply fill out a new W-4 form with your employer. That may not be the best way to pay less taxes though. After all, a refund should be money in your pocket all the time, not just at tax time. A higher withholding will simply let Uncle Sam keep more of your money all year only to then give you some back. Why not put that money into a savings account for your own use and not the government’s use. Withholding aside, there are other ways to possibly boost your refund. So if you’re looking to pay less in tax and maximize your tax refund come April 15, 2018, or 2019, check out these tips.
1. Know Available Deductions and Your Exemptions
An exemption is money you earn but don’t have to pay taxes on. A deduction lowers the amount of your income you have to pay taxes on by lowering your taxable income. There are two main types of tax deductions—the standard deduction and itemized deductions. Taxpayers must use one or the other, and the IRS notes it’s generally best to itemize deductions if your total itemized deductions are greater than the standard deduction.
The standard deduction increased for 2018. It’s $12,000 for individuals, $18,000 if you file as head of household and $24,000 if you’re a married couple filing jointly.
Both exemptions and deductions reduce the amount of money you owe Uncle Sam each year and can help you score a bigger refund or at least a lower bill. That’s why it’s important to know which deductions you’re eligible for if you itemize. We cover a few common ones below. To learn more see the guide to common tax deductions and exemptions.
New in 2018
Note, there are changes that affect your taxes for tax years 2018 (taxes you owe by April 15, 2019) and beyond due to the Tax Cuts and Jobs Act (TCJA) that passed in December 2017. The personal exemption, which was $4,050 in 2017, for example, was eliminated.
2. Build Your Retirement Savings
Contributing to a 401K plan offered by your employer is a great way to shield income from taxes and build up savings for the future. Contributions are taken before you pay taxes. You don’t pay taxes on that money and it comes out of and reduces your taxable income. Winner winner. Making contributions to an individual retirement account (IRA) works, too. You can’t usually use pre-tax dollars for an IRA, but you can deduct your contributions from your taxes.
The IRS raised the limits on the contribution employees can make to their retirement accounts, including 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plans, in 2018 to $18,500. If you’re 50 or older, the limit is $24,500. You can also continue to count any contributions you make to a traditional IRA until April 15, 2019, and those contributions apply to your 2018 tax bill.
3. Pay for Medical Expenses with a Flexible Spending Account (FSA)
A flexible spending account (FSA) lets you set aside part of your salary on a pre-tax basis for medical expenses and child and dependent care. Many employers offer FSAs, which can be a valuable tool for lowering your tax bill by holding money you use to pay for medical and child care expenses from your taxable income.
4. Deduct Medical and Dental Costs
You can take a tax deduction for all the medical bills you’ve paid in the previous year. That is if you itemize deductions instead of taking the standard deduction. Medical expenses include health insurance premiums if paid with post-tax money, dental care, eye care and glasses, mental health counseling and driving to and from doctor visits and other medical appointments. For the 2018 tax year, qualified medical expenses that exceed 7.5% of your adjusted gross income (AGI) for the year qualify for a deduction. As of January 2019, only the amount of unreimbursed medical expenses that exceed 10% of their adjusted gross income will qualify.
5. Make Charitable Donations
Clean out the closets, donate an old car instead of trading it in, make financial contributions to your favorite charities—all these may be tax-deductible—if you itemize. Charitable contributions can trim your tax liability and may boost the amount of any tax refund coming your way. Make sure you give your donations to a qualified charity and keep good records. You’ll need to itemize your charitable donations on a 1040 tax return using Schedule A.
6. Consult a Tax Professional
If your tax returns are complicated and you suspect you’re leaving money on the table, it may be time to get help. There are plenty of professional tax preparers out there, including certified public accountants and tax attorneys that can help you navigate tax laws and get a bigger return, if not a lower bill. If you do decide to go pro, be sure to vet any tax preparer you consider. The Internal Revenue Service offers tips for choosing a tax preparer.
Do Tax Deductions Really Increase Your Refund?
As the IRS points out on its website, a tax deduction won’t provide a dollar-for-dollar reduction of your income tax liability. A tax deduction lowers your taxable income and is equal to the percentage of your tax bracket. It may increase your refund and can reduce the amount of tax that you owe. Just make sure you’re eligible to claim it before you mark your income tax return.
On the other hand, a tax credit does give you a dollar-for-dollar reduction in the amount of tax you owe. So, if you receive a $1,000 tax credit, for instance, you pay $1,000 less in taxes
Get Your Bigger Refund Faster
Most tax refunds are processed and in your pocket in three weeks. If you just can’t wait and if you want to use a tax preparer, you might consider a refund advance loan. If you get your bigger refund, with a refund advance loan, you can get it even faster.
A variety of preparers offer an interest-free loan, know as refund advance, when you use their tax preparation services. With these services, you can have your money—or part of it in hand—the next day. Learn more in What Is a Tax Refund Advance Loan?
In addition to preparers that offer refund advance loans, there are plenty of ways to file your taxes, including other preparers, tax accountants or a free tax-filing service, such as TurboTax, efile.com or the Free File Fillable Forms offered by the IRS. According to the IRS, 70% of all taxpayers are eligible to file their taxes free. So it’s worth looking into your options. Check out the ultimate guide to filing your taxes for free.
Put off filing your taxes? Not a smart move. Unpaid taxes can hurt your credit score and cause a variety of problems. So file sooner instead of later. Happy filing.
This article was originally published March 13, 2017, and has since been updated by another author.