According to the IRS, about 75% of filers got a tax refund the year before, and the typical direct deposit tax return was nearly $3,000. However, you may be wondering, “why is my refund so low?” or you may believe you have not received the tax result they anticipated last year, or they may be questioning if there are any additional tax incentives available to help offset the effects of 2020.
Here are several suggestions on how to max out the tax refund this year, regardless if you obtained the refund you earned, believe you might have gained more last year, or were influenced by the happenings of 2020.
These approaches will not only help lessen your tax liability but also make sure you receive the biggest tax return you ever got!
1. Make the most out of the tax benefits made possible by coronavirus relief measures
If the events of 2020 affected you, there may be tax repercussions, and you may be eligible for tax relief under any of the coronavirus compensation packages passed in 2020.
The Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, as well as the Coronavirus Response and Relief Supplemental Appropriations Act, delivered a slew of policy reforms, including increased jobless benefits and stimulus payments.
Under the relief packages, stimulus payments are not taxable, and if you did not take the maximum stimulus payout, you may be able to claim extra as a recovery rebate credit when you submit your taxes.
The recovery rebate credit might boost your tax refund or minimize your out-of-pocket expenses.
If you are self-employed and are ill, confined, or caring for a member of the family, the Families First Coronavirus Response Act may allow you to collect new tax credits under the Families First Coronavirus Response Act.
2. Claim the friend or family member you’ve been offering support to
You may be eligible to claim your buddy, significant other, or kin as a dependent if you have been helping them.
There are some restrictions on who is eligible, but the deduction is valid if your non-relative resided with you for the whole year, does not provide over half of their own support, and earned less than $4,300 in taxable income in 2020.
Although the dependent exclusion is no longer available due to tax reforms, you can still collect the other dependent credit for non-child dependents valued up to $500.
3. Reconsider your filing status
The filing status that properly meets your needs could have an impact on whether or not you get a tax refund. The following is determined by your filing status:
- Your customary deduction
- Your filing requirements
- The credits you are entitled to get
- The amount of tax you pay or the refund you collect
There are five statuses to choose from, but the most common are:
- Married filing jointly or separately
- Head of household
4. Collect the Earned Income Tax Credit
The Earned Income Tax Credit is available to working families, persons, self-employed workers, and those with a modest to limited income.
The EITC reduces your tax liability and may even entitle you to a refund. To be eligible, though, you must:
- Possess a valid Social Security number
- Be a U.S. citizen, a year-long resident alien or a nonresident alien married to an American citizen or resident alien filing jointly
- Have revenue from self-employment, from an employer, or from working on a farm
- Not be a claimed dependent or child of another person
- Have a qualifying child and be between the ages of 25 and 65, living in the U.S. for at least half the year
- To receive the EITC you must file a tax return, even if you owe no taxes.
5. Don’t forget about refundable tax credits
A tax credit reduces your tax responsibility dollar for dollar, while a refundable tax credit allows you to obtain a credit that exceeds your tax burden.
For a household with three or more children, the earned income tax credit is potentially worth $6,660. Per the IRS, one out of every five taxpayers who are qualified for the credit does not claim it.
Because of adjustments in their income, some individuals are no longer eligible for this crucial credit.
Alternatively, if their income is well below the IRS income-filing level ($12,400 for single filers and $24,800 for married filers filing jointly), they may choose not to submit their taxes.
If you want to learn how to get the biggest tax refund possible, you need to seek the assistance of a tax pro.
Get in touch with the tax experts at TFX and they’ll gladly help you collect the biggest tax return you ever got!
About the Author: Veronica Rhodes from TFX, TFX is a women-owned tax firm that offers all U.S. tax services — for both American citizens and non-citizens with U.S. tax filing requirements. From straightforward expat tax preparation to complex cases involving multiple factors — we’ve handled it all for over 25 years.