Tips to increase your tax refund
Taxpayers can take steps before the end of 2021 to save on taxes and increase their refund when filing taxes in 2022.
Experts expect the next tax season to be regular – that is, like before COVID 19 – which means that tax returns can start to be filed at the end of January, and that many taxpayers who file them electronically they will receive the refund from the IRS in the first weeks of February.
They also note that refunds may take a little longer for taxpayers claiming the Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC). The additional time will be used by the IRS to verify if the person is entitled to those credits.
Here are tips from Miguel Burgos, CPA and tax expert at TurboTax, to put into practice before the year is out.
▪ Make charitable donations before December 31st. Previously, you had to file an itemized return to include charitable donations, but the CARES Act allows couples filing jointly to take a deduction of up to $600 for cash donations to qualified tax-deductible organizations. All other taxpayers can deduct up to $300 of taxes for the same reason.
#IRS: A special pandemic-related provision helps most people get a deduction of up to $600 for cash gifts to charity through 12/31. See: https://t.co/GTLfLdAwX9 pic.twitter.com/GGnjEnaixV
— IRSnews (@IRSnews) December 21, 2021
▪ Make a significant contribution to your retirement account, whether it's a 401K or an IRA, so you can lower your taxable income, increase your refund and save for the future.
▪ Defers the collection of a year-end bonus. If you are one of the lucky ones who receives bonuses, and by earning this money you could go into a higher tax bracket, consider delaying that income until the beginning of the next year. You can ask your boss to pay you in January.
▪ Spend your FSA (Flexible Spending Account). If you have a flexible spending account, and you have money left in it, waste no more time and catch up on your doctor visits, says Burgos.
▪ Takes into account the Credit for Other Dependents. Do you support your parents or grandparents, or another loved one? If that's the case for you, they might qualify as dependents who aren't children. Be sure to take advantage of the new “Credit for Other Dependents” worth up to $500, which can reduce the taxes you owe dollar for dollar by $500.
▪ Make an extra mortgage payment on your home before the year is out. That way, you could claim the interest you paid as an additional tax deduction on your 2021 taxes. That way, you can take the deduction right away instead of waiting 12 months to take it when you file next year's taxes. Before using this strategy, keep in mind that, under the new tax law, if you bought a new home after December 15, 2017, you can deduct the interest you paid on a mortgage loan basis of up to $750,000, in instead of the amount of $1,000,000, applicable to homeowners acquired before that date. This strategy also allows you to pay off your home loan faster and save thousands of dollars in interest over the long term. Do not forget to specify that you want to allocate that extra payment to the principal of the mortgage.
Author: Patricia Chung 3:24 pm