Tax time is here and for millions of Americans that means a little extra cash in the form of a refund. The average refund is right around $3,000 but how much money you’ll actually get back depends on your income, what tax credits you qualify for and what expenses you’re able to deduct. Taking advantage of every tax break you can may help you snag a bigger refund check when it’s time to file.
While it may not seem that important your filing status plays a big part in determining the size of your tax refund. Your eligibility to claim certain deductions and credits is linked to your adjusted gross income and the IRS imposes different limits for single filers, those who claim head of household and married couples. If you’re able to choose between two different filing statuses, you want to pick the one that gives you the biggest return.
For example, filing as head of household rather than single allows you to claim a higher standard deduction and enjoy a more favorable tax rate. If you don’t normally itemize that means you can claim a standard deduction of $8,950 for 2013, compared to the $6,100 allowed for single filers. To qualify as head of household you have to be single or legally separated, pay more than half the expenses of maintaining your household and have at least one qualifying dependent who lives with you.
Married couples should also evaluate their overall tax situation to determine whether they get the most benefit from filing jointly or separately. The new 39.6% tax bracket and the 3.8% surtax on net investment income are set to hit high-income earners the hardest so it may make sense for you to file separate returns if your combined income is substantial. Filing separately does mean you’ll miss out on certain tax credits, however, so you’ll want to run the numbers first to see if it makes sense.
Tax deductions lower your taxable income which can help to reduce what you owe or increase your refund. There are plenty of expenses the IRS allows you to deduct. Some of the most common things that are tax-deductible include donations to charity, tuition and fees you paid for higher education, medical expenses and business expenses.
In addition to these expenses, you can also write off things like moving expenses, job hunting expenses, gambling losses, mortgage interest, property taxes, interest paid to your student loans and state and local sales or income tax. If you’re planning to claim a deduction for any of these things, you’ll want to take a look at the IRS guidelines to determine the amount that’s deductible and what records you’ll need to support your claim.
While a deduction reduces your taxable income, a credit reduces the amount of tax you actually owe. Some credits, such as the adoption tax credit or the child and dependent care credit, are designed to directly offset certain expenses you pay out of pocket. Other credits, like the Earned Income Credit and the Retirement Saver’s Credit, are intended to reduce the tax burden for low to middle income families.
Like deductions, the IRS has specific rules that govern who qualifies for a particular credit and how much the credit is worth. For example, the American Opportunity Credit is good for up to $2,500 for individuals who paid qualified higher education expenses. Single filers earning more than $80,000 and married couples filing jointly whose AGI exceeds $160,000 can’t claim the credit.
If you just miss the cut off for certain credit based on your income, it pays to take a second look at your deductions. Even deducting a relatively small expense may push your income into a lower range which would allow you to qualify. For every dollar you claim as a credit, you’ll see your tax liability go down a dollar which ultimately means a bigger refund.
The tax code is confusing but you shouldn’t let it keep you from getting the most amount of money you’re entitled to. Keeping up with tax changes and maintaining accurate records of your expenses can help you get the refund you deserve this tax season.
This post was published on February 25, 2014