The strategic elements in obtaining a bigger tax refund are: 1) knowing what deductions and credits you’ve qualified for and 2) planning ahead to make yourself eligible for more deductions and credits. The more you are informed about deductions and credits, the more informed questions you can ask advisors about ways to get a bigger tax refund based on your situation.
Check out the top three ways individuals can get a bigger tax refund below:
- Defer income. For employees, one example of this refers to taking a portion of your wages and putting those dollars into a tax-deferred account such as a 401(k). The amount in wages to defer is based on each person’s financial situation and comfort level but the idea is to put as much as possible into a tax-deferred account, which lowers your taxable income. For self-employed individuals, one example to defer income is to delay delivery of services or goods—and the payment you receive for those services—to the following year.
- Accelerate deductions. For example, make 13 mortgage payments instead of 12, which provides an extra month of the tax deduction for the interest portion you can claim in a year. Another method to accelerate deductions is to pay medical expenses or make charitable contributions for next year earlier than anticipated during the current fiscal year. An effective approach is to look at the expenses you had the previous January and that you’ll likely have again during that month and pay them one month in advance. Paying a property tax bill in December that’s due in January is another example. For self-employed individuals, the same principle applies—look for opportunities to pay expenses due in January during the month of December.
- Maximize deductions/tax credits. Examples include putting the maximum amount you can into savings accounts such as a 529 plan or Health Savings Account. Home office deductions are a good option for self-employed individuals. In addition to maximizing deductions, look to maximize tax credits for things such as energy efficient improvements and purchase of electric vehicles.
Planning ahead is essential. It’s never too early to ask questions about what you can do now to get a bigger tax refund during the upcoming filing year.
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This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.
