- 8 Ways to Get the Most Out of Your Tax Refund
- Don't Take the Standard Deduction
- Consider Your Filing Status
- Claim Dependents
- Claim Charitable Contributions
- Claim the Recovery Rebate
- Claim the Earned Income Tax Credit
- Contribute to Your Retirement Plan
- Review Lesser-Known Credits
- Frequently Asked Questions
With tax season in full swing, make sure you’re not missing out on exclusive tax benefits that may boost your tax refund. As a result of the coronavirus pandemic, taxpayers are getting a little extra help with updated credits and deductions—some only available for 2021. To get the biggest refund possible, here’s what to do when filing your taxes:
8 Ways to Get the Most Out of Your Tax Refund
Use these tips to maximize your 2021 tax return:
- Don’t take the standard deduction
- Consider changing your filing status
- Claim dependents
- Claim charitable donations (without itemizing)
- Claim the recovery rebate
- Claim the earned income tax credit
- Contribute to your retirement plan
- Review lesser-known credits
Don't Take the Standard Deduction
In 2017, the Tax Cuts and Jobs Act nearly doubled the standard deduction for 2018 through 2025. While this made it harder for some to claim more than the standard deduction, you may still want to consider itemizing your return this year.
For example, if you’re a single filer with a relatively large mortgage, itemizing your deductions may put you in a better position to get more back on your refund. You may also be able to exceed the standard deduction by claiming charitable contribution deductions and medical expense deductions.
Consider Your Filing Status
If you’re married, you may want to reconsider filing jointly this year if any of the following situations apply to you:
- One of you is self-employed
- You have a lot of itemized deductions
- You’re struggling with student debt
For those who own a small business or work full-time as a freelancer, you’ve likely already been paying estimated quarterly payments to cover the amount of tax you owe. However, if you underestimated your payments or haven’t been making them, it may increase your joint tax liability and lead to a smaller return.
Do the Math
Keep in mind that splitting your taxes up may disqualify you from some key tax credits or deductions. You’ll need to run the numbers first before deciding which route to take.
Or, if one of you is struggling with student loan debt and file jointly, any income-based repayment plan will look at both of your wages as one income. When filing separately, only the income of the person with the student debt will be taken into account for a repayment plan.
Finally, if there’s a pretty sizable gap in what you each earn and if one or both of you has a substantial amount of deductions to claim, filing separately may get you the full amount of tax benefits.
Single Filers May Qualify for Head of Household
For those with a single filing status, you may try to qualify for head of household status. To qualify, you must:
- Pay for more than half of your household expenses
- Be considered unmarried for the tax year, and
- Claim a qualifying dependent (this could be a child or a dependent adult)
Heads of households get a larger standard deduction than those filing single, so it’s worth a look.
Both the child and dependent care credit and the child tax credit have been substantially increased for this year, which means it’s essential to utilize these credits by properly claiming dependents.
For 2021 only, the child and dependent care credit amount increased to:
- $8,000 for one qualifying individual or
- $16,000 for two or more qualifying individuals
This credit can apply to children 13 years or younger or to individuals who are physically or mentally incapable of taking care of themselves.
Increased Child Tax Credit
Further, in 2020, the child tax credit also saw an increase, going from $2,000 to $3,000 per child (now up to 17-years-old for 2021) or $3,600 for children under 6 years of age.
Though some families may have received this credit throughout the year in advance payments, those who haven’t may still receive it as a refund. If you opted out previously or hadn’t claimed dependents in prior years, you may qualify.
Claim Charitable Contributions
Typically, to claim the charitable contributions deduction you’d need to itemize your deductions. However, due to the COVID-19 pandemic, temporary expansion measures were put in place as a part of the CARES Act that passed in March 2020.
Now, non-itemizers can deduct charitable contributions without having to itemize, even if they take the standard deduction.
If you decide to claim the charitable contributions deduction, you may qualify for:
- Up to $300 for individuals filing single returns
- $600 for married individuals filing joint returns
You can claim this limited deduction if you made cash contributions to qualifying charities between January 1, 2021 and December 31, 2021.
Claim the Recovery Rebate
Starting in 2020, the IRS sent out three rounds of Economic Impact Payments to eligible Americans due to the pandemic. The last of the three was paid out in 2021. If there was an issue with your payment, though, you may qualify for the refundable recovery rebate credit.
You may be eligible if:
- Didn’t get your third stimulus check
- Received less than you were owed
- Your situation changed this year and you now qualify
If you did get that third payment, you should receive a letter (Letter 6475) detailing how much you were paid so that you can report it on your return.
Did You Know...
If you received the check due to your 2020 income but your 2021 income would have disqualified you, you don’t need to repay the third stimulus payment.
Claim the Earned Income Tax Credit
As a part of the American Rescue Plan, low- and moderate-income taxpayers without qualifying children may be eligible for a larger earned income tax credit than previous years. The plan nearly tripled the maximum credit available to $1,502 for 2021 only.
To qualify, your earned income for 2021 must be below:
- $21,430 for single filers
- $27,380 for married joint filers
Plus, the amount of investment income that you can have (separate from your wages) to still claim this credit increased to $10,000. For those with qualifying children, if you earn $57,414 or less, you may still qualify.
And new this year, childless workers as young as 19 and workers 65 and older may also qualify.
Contribute to Your Retirement Plan
Actual contribution and deduction limits depend on your adjusted gross income, but you may be eligible to receive a deduction of up to the contribution limit of $6,000.
Review Lesser-Known Credits
You may already be familiar with some of the bigger deductions and credits but be sure you’re aware of all the lesser-known ones that you may be missing out on.
For example, if you’re a homeowner who installed energy-efficient items in and around your home, you may qualify for the non-business energy credit, solar credit, or a few other energy credits. While they aren’t necessarily the biggest credits, every little bit counts when it comes to your refund.