“To clarify from the start, I don’t think taxpayers should be looking at how to maximize their refund, but instead should be looking at how to minimize their tax liability,” Christopher Jervis, an Enrolled Agent in Winder, Ga., explains. “A refund simply means a taxpayer sent more money to the IRS than was needed to cover their tax bill for the year.” While that may not necessarily sound too bad to some, Jervis points out, “This is the only area regarding finances where people regularly willingly give up more money than is necessary. When people go grocery shopping, they don’t rack up a bill of $225.00, and then give the store $750.00 and tell them to send them the change next year sometime. That’s essentially what a tax refund is.” “My advice to most of my clients is to have as small a refund as possible or even possibly owe some small amount. Bills are due each month, and your landlord/mortgage company or utility company doesn’t care that you will have money coming in nine months from now,” Jervis says. “Having the extra money (that would come out for taxes each pay period) in each paycheck is more beneficial when bills are due monthly. This is particularly applicable given the significant documented delays in processing and issuing refunds the last two years, and which is expected to continue this year. How useful is a $4,800 refund when it may take six to nine months to receive it? Perhaps the extra $400 a month in the paychecks could have gone further in a tight economic situation.” That said, if you’re determined to get a maximum refund—or if it’s simply too late for you to change your withholding or estimated payments already—read on for how to maximize your tax refund if you’re filing your own taxes. Our tips are from a variety of experts, including CPAs, Enrolled Agents, accountants, tax attorneys, tax preparers, and more!
How to Get a Max Refund If You File Your Own Taxes
Get organized and stay on top of deadlines.
Listen, if you wait until April 14 to get your stuff together, it’s going to be a tough road. Kimberly Dula, CPA and Managing Partner at Friedman LLP in Philadelphia, advises, “Get organized now. Don’t wait until you get in front of your computer to start guessing where a year’s worth of information might be. Keep a folder on your desk during the year and as tax-related information becomes available, add it to the folder. This helps to make certain that both income and deductions don’t get missed.” You can also create a desktop folder for your computer and/or a special folder in your email for receipts and other information you may need electronically throughout the year. Another important factor to being organized is remaining beholden to your deadlines. Josh Zimmelman, managing partner of Westwood Tax & Consulting in Rockville Centre, New York, explains, “Stay on top of your schedule. If you miss the tax deadline, you may be subject to a late filing penalty and interest charges. If you’re unable to file your return on time, make sure you file for an extension before the deadline. (Of course, as a reminder, an extension only gives you extra time to file, not extra time to pay.) If you’re working with an accountant or other professional preparer make sure you send them all of your documents early on because the closer to the deadline you get, the busier they will be.”
Keep good records and be sure to report all of your income (including cash).
If you get paid in cash, don’t think you’re not on the hook for it at tax time. If you don’t report your earnings, you may be audited, which can obviously affect your shot at a hefty refund. “If you fail to report your full, correct income you might trigger an audit. The IRS receives copies of all W-2s and 1099s that you receive, so forgetting to report all of your income may result in an audit,” Zimmelman says. “Even if you don’t receive a 1099 for a specific payment, you are still required to report that income, no matter how small it is. If your business deals in cash a lot, you are more likely to get audited (because cash-businesses are more likely to incorrectly report income). Make sure you keep meticulous records and receipts.”
Consider creating a small business if you don’t have one already.
Embracing your entrepreneurial spirit can pay off in spades when it comes to getting a hefty tax refund. Crystal Stranger, an Enrolled Agent for GBS Tax, explains, “Businesses are the best routes to getting a large refund. Many entrepreneurs start businesses, and especially as an LLC taxed as a partnership it is possible to pass substantial losses through to the individual level in early years of growth, offsetting other income to obtain a large refund. This should be done cautiously, however, because after more than two years of losses you are likely to become a target for audit and will have to show that the business is legitimate and was not actually just a hobby. Then the income will be taxable, but the deductions will be lost.”
Keep your personal and business income separate.
If you work for yourself, it’s easy to conflate your personal and business spending—but try not to do that! “Don’t mix up personal and business spending. It’s much easier to stay organized and keep track of your spending if you use separate checking, savings, and credit card accounts,” Zimmelman says. “Too many taxpayers miss out on deductions because their finances are not in order. Separating your expenses from the start makes filing your tax return so much easier. If you use something for both business and personal purposes (such as a cell phone), you can deduct a percentage of the expenses on your tax return based on the percentage of use, but you’ll need detailed documentation such as call logs, to back that up.”
Be sure to include all of your estimated tax payments and/or withholding on your 2021 tax return.
To save yourself time, double-check how much you’ve paid already, Moswen James, Enrolled Agent at Get Help Tax recommends. “Make sure that you include all your withholding and estimated tax payments made in 2021 on your tax return,” he says. “The IRS experienced significant delays recently so you will want to confirm what they have on record before filing. Getting to speak to a live person at the IRS can be a challenge sometimes but confirming these amounts will help prevent processing errors and delays of your refund.”
Be informed about your tax credit options and current tax laws.
Becoming and remaining informed of the ever-changing tax landscape is clutch when filing your own taxes, Jerry Zeigler, AFC, Enrolled Agent, SaverLifeTax Coach and owner of JZ Financial Management, says—and the work there may not necessarily be as hard as you think it’d be. “When preparing your own tax returns, the key to making sure you get the biggest refund possible is to go beyond just answering questions in tax software. Having the fundamental tax knowledge for your tax situation allows you to recognize potential credits and deductions for our tax situation,” Zeigler says. “Using IRS.gov as your go-to resource is a smart way to make sure your tax knowledge is enough. Even just searching on irs.gov for something related to your tax situation can reveal a tax credit you weren’t aware of. For example searching for “homeowner credits” at irs.gov revealed for me the “non business energy property credit”, which is a credit some homeowners are not aware of.” He adds, “Keeping up with tax law changes is important too. Every year both the 1040 instructions and Publication 17 (Tax Guide for Individuals) have updates on changes to the tax laws towards the front of the publications. You can also sign up for IRS newsletters with tax tips and updates.”
Use the right tax filing status for you.
Using the correct tax filing status can make a big difference in the size of your tax refund. If you’re married, it typically is beneficial to file your taxes jointly with your spouse—but not all the time. “There are certain income levels where filing separately may yield a better overall refund when combined,” Jervis says. “This may be more true this year, as the recent tax bill made certain credits available on a limited basis to Married Filing Separately filers that were not previously available, particularly the Earned Income Credit.” This is especially important to consider if you or your spouse have had significant medical bills (thanks, American capitalist for-profit healthcare system!). Stephanie Ng, CPA and author of I Pass the CPA Exam, explains, “The IRS only allows you to deduct your medical costs that exceed 7.5% of your AGI (Adjusted Gross Income). Therefore, if you and your spouse have a high AGI, your medical expenses have to be very high before you can deduct them. In this case, the spouse with the disproportionate medical bills may wish to file separately to deduct more of these expenses.” Still, she notes, “In many instances, Married Filing Jointly is the best option, even if it means forgoing the biggest possible medical deduction. Besides, joint files usually receive more overall deductions and credits. But thankfully, most tax software programs will determine what filing status is best for you and your spouse.”
If you have choices in your tax return, run the numbers for each option given—including the standardized vs. itemized deductions.
Tax preparer and head accounting writer for TaxCure, Kari Brummond, urges those filing their own tax returns to look into every possible option if you have more than one for any given section of your return—and that goes beyond your filing status. “When you have a choice on your return, run the numbers both ways to see where you gain the greatest advantage,” Brummond says. “For instance, if you’re self-employed and qualify for the home office deduction, you can calculate your deduction in two different ways: You can claim a simplified deduction of $5 for each square foot of your office, but that caps out at $1,500. Alternatively, you can claim a percentage of your home’s bills based on the size of your home office relative to the rest of your home. Say your home office takes up 10% of your home, and annually, you pay $18,000 in rent, $1,200 in electricity, $1,800 in water, and $240 in renter’s insurance. You can add up those expenses and claim 10% of them as a business deduction. They total $21,240, making your home office deduction $2,124.” “Another business deduction that can be calculated in different ways is the vehicle deduction,” she notes. “You can either claim a set amount for each mile you drove or a percentage of your vehicle’s total expenses (repairs, insurance, registration fees, etc.) based on how often you use the vehicle for work or personal use.”
Take advantage of the 2021 Child Tax Credit and Dependent Care Credit.
A small silver lining in the ongoing COVID-19 pandemic is the Child and Dependent Care Credit. Ng advises, “Tally all of your 2021 childcare expenses and take advantage of the Child and Dependent Care Credit. Qualifying dependents include children under the age of 13 and any individuals under your care who cannot care for themselves (such as an elderly parent). Furthermore, you may be able to claim it if you spent money on childcare while working or seeking employment.” You can use more money per dependent this year than before. “Previously, a taxpayer could use up to $3000 per child, to a maximum of $6000, in child care expenses to calculate their Dependent Care Credit. This year, those allowable expense figures have increased to $8000 per child, up to $16,000 for two or more children,” Jervis says. “In addition, the credit was made refundable, meaning that a taxpayer can receive as a refund any portion of the credit not used to pay down their tax liability.” Be sure to figure out which option in terms of filing status works best for you and your family in regards to the Child and Dependent Care Credit, because everyone’s situation is different, Brummond says. “If you share a child with someone you’re not married to (whether that’s a partner or an ex), you will get a different tax liability outcome based on who claims the child,” she pointed out. “Again, consider doing your returns both ways to see which option pans out the best. Obviously, this isn’t possible in cases where a divorce or custody order stipulates who gets to claim the child as a dependent. I’m referring to situations where the parents get to chose between themselves who claims the child.” That said, you have to keep good records for this to be effective, Jervis notes. “This is going to be a significant increase for most taxpayers, but it comes with some caveats. Taxpayers must provide the name, address, and tax ID number (Social Security Number for individual or Employer Identification Number for business) for the care provider, as well as the dollar amount paid. The credit cannot be given without all of this information.” Make sure you include all eligible dependents, but know this isn’t the time or place to get particularly creative. “A lot of families, particularly those who have a parent who doesn’t work or receives non-taxable income, will ‘share’ dependents, allowing another relative to claim their dependents. Not only is this not allowed and possible fraud, but it may also hurt the parent,” Jervis warns. “Changes to the Child Tax Credit this year not only increased the amount of the credit, but also removed the requirement to have ’earned income’ in order to receive the credit. By allowing others to claim their dependents, a taxpayer is costing themselves money and also putting themselves at risk.”
Check if you’re eligible for the Recovery Rebate Credit.
Were you eligible for a stimulus payment but never got it or got an incorrect amount? You may be eligible for a tax credit for that. Attorney and “payday loan crusader” Lyle Solomon advised, “If you didn’t get your third stimulus payment or a plus-up payment in 2021, you might be entitled to a Recovery Rebate Credit on your 2021 tax return. You may also get a refund if you got an incorrect stimulus payment.” Jervis adds, “This may apply to taxpayers who have dependents in 2021 that they did not have in 2020. Bear in mind that this could delay the refund.”
Self-employed? See if you’re eligible for COVID-related tax breaks.
“Self-employed taxpayers who were unable to perform their services due to COVID may be eligible for Credits for Sick Leave and Family Leave,” Jervis says. “Taxpayers would report the number of days unable to work their self-employed position, as well as the time frame (different periods have different qualifying and amounts) on Form 7202 and attach it to their tax return. This credit may also cause a delay in processing the return.”
Cover your bases regarding your retirement contributions.
If you are eligible to make a deductible contribution to a traditional IRA, you have until April 18, 2022 to make the contribution and use it to reduce your adjusted gross income. The keyword here is “eligible.” If you are covered by an employer-sponsored retirement plan like a 401(k), then the deductibility your contribution may be reduced or eliminated. The contribution can still be made and recorded on IRS Form 8606, and any tax benefit for the contribution is deferred until you take funds out of the IRA in retirement. If you can’t deduct the traditional IRA contribution and you don’t make too much money, making that contribution to a Roth IRA would make more tax sense. If you’re self-employed, you have retirement options beyond just an IRA or a Roth IRA. “Self-employed individuals can take advantage of funding a SEP IRA to reduce their personal adjusted gross income,” Rob Burnette, CEO, financial advisor and professional tax preparer at Outlook Financial Center in Troy, Ohio, says. “These taxpayers can contribute up to 20% of their net self-employment income, after the deduction for one-half of self-employment tax, up to a maximum of $58,000. Usually, these contributions would be made prior to April 18, 2022, after net self-employment income has been calculated for 2021.”
Make sure you get all relevant tax credits for education.
Tax attorney and W Tax Group President and COO Dr. Agustin Arbulu remind us of the importance of taking appropriate tax credits if you or your children are in college. If you have a child in college, the American Opportunity Credit may grant a tax credit of up to $5,000, he says, while if you’re a college student, you may be eligible to claim a Lifetime Earning Credit. Be sure to have copies of your and/or your children’s 1098-T forms, which the colleges should give you. Also be certain to check if you can deduct savings for college. Dula notes, “Many states like Pennsylvania and New York allow deductions for contributions to 529 plans. If a taxpayer has made contributions to a 529 plan during the year, they should determine if this deduction is allowed for their resident state.”
Consider using your 2019 income to calculate your Earned Income Tax Credit.
“The Consolidated Appropriations Act allows taxpayers to use their 2019 earned income to calculate their Earned Income Tax Credit if using the 2019 figure yields a better result,” Jervis says. “This is especially helpful for those taxpayers who saw their incomes drop significantly due to COVID. Perhaps you only earned $2,000 last year before your city was locked down and your employer laid you off. But in 2019 (Pre-COVID), you earned $27,000. You can choose to use the larger figure from 2019 if it gives you a better result. However, be aware that refunds using this ’lookback’ will be delayed. You may receive significantly more money, but you may have to wait significantly longer to receive it.”
Be generous with yourself regarding your charitable contributions.
You probably know you can deduct monetary charitable contributions from your taxes, but that’s not all! “One donation that is often missed is the contribution of household items and clothing,” Dula says. “When the donation is made taxpayers don’t feel it is worth it to get a receipt. However, all of these charitable contributions add up and if the taxpayer is itemizing deductions then valuable tax benefits are being missed.” What’s more, if you’ve volunteered your time to a cause, you may be eligible for some deductions there, too. Dr. Arbulu points out, “Include mileage driven for charitable work you may have done.” That means if you drove to volunteer (or Ubered there), you can deduct those expenses, too. Also know that even if you don’t itemize your deductions, you can still get credit for charitable contributions. Solomon notes, “Due to the temporary provisions enacted by the Taxpayer Certainty and Disaster Tax Relief Act of 2020, nonitemizers can also deduct charitable contributions. Individuals who take the standard deduction can deduct up to $300 in cash contributions to qualifying charitable organizations in 2021 and $600 for married couples filing joint returns.”
You can probably deduct more medical expenses than you think.
Not only can you deduct out-of-pocket medical expenses like co-pays for doctor visits and prescriptions (including dental and eye care), Dr. Arbulu notes, you can also deduct mileage and travel expenses incurred for medical care.
You may earn tax credits for home expenses and certain home improvements.
If you’ve spent a lot of time (and money!) fixing up your space, you may be able to receive tax credits for some of those expenses, especially if they improve energy efficiency. “Residential energy credits for solar, furnaces, air conditioners, roofing, windows, insulation, hot water heaters and boilers can make you eligible for a $500 lifetime limited credit,” Dr. Arbulu says. Your appliances and the work done may need to meet specific local or state requirements to be eligible (usually for energy efficiency), but absolutely be sure to check if you can use the credit because it will make these home projects have an even quicker return on their respective investments. What’s more, you may be eligible to write off other expenses associated with homeownership, including mortgage interest, mortgage points if you refinanced or purchased a new home, and property taxes.
Your new car may get you a tax break.
Depending on where you live, what vehicle you purchased, when you purchased it, and how much you use it for things like work, charity work, and getting to and from medical appointments, you may get sweet tax credits and deductions for mileage, as well as gas and other related expenses. Dr. Arbulu says you may also be eligible to deduct expenses like licenses, permits, and registration. What’s more, Jervis notes that the Electric Vehicle Credit is still in place for certain vehicle models. Check with your accountant to see what you qualify for—especially because now more than ever, cars aren’t cheap!
You may be able to deduct dining out for work.
You may be able to deduct dining out from your taxes if you took clients out to eat. You may be in luck, Zimmelman says: “Are you a business owner that took out clients to a meeting at a restaurant? Normally, this deduction was limited to 50% of the cost. New for 2021, this deduction is now allowed in its entirety.”
If you’re self-employed, know everything you can deduct as business expenses.
If you’re self-employed, you may be eligible for more business expense tax deductions than you realize! George Birrell, CPA and founder of Taxhub, explained, “The most common mistakes we see when clients come to us after preparing their own return are related to self-employment income. There is a cornucopia of deductions that are available if one gets creative. For example, people in the arts and entertainment industry expenditures for activities that most people consider ’entertainment’ can actually be legitimate tax writeoffs. For example, if you are in the media or advertising industry you can actually write off cable TV or streaming services as a research and development expenditure required to stay on top of media trends.”
Maximize your retirement and HSA contributions.
Thomas J. Brock, CFA, CPA and expert contributor at Annuity, advises to pump some of your savings (if you have them!) into two specific accounts to secure a maximum tax refund.“If you have excess savings, look to maximize your contribution to a traditional investment retirement account (IRA),” he says. “The maximum annual contribution is $6,000 per person ($7,000 if you’re 50 or older), but this is subject to income limitations. Another tax-saving option is to maximize your contribution to a health savings account (HSA), if you participate in a high-deductible health plan. The maximum annual contribution is $3,600 per person ($3,700 if you’re 55 or older). No income limits apply. The deadline to make a contribution to either account is April 15, 2022.” You may also be eligible to contribute to a 401(k) if you have one.
See if you’re eligible to deduct sales taxes.
Depending on where you live, you may be able to deduct sales taxes paid on purchases from your income taxes. Jaideep Singh, CEO of FlyFin and Luke Olson, CPA, FlyFin, explains, “Individuals who take itemized deductions can deduct state income taxes or state sales taxes paid. Certain states do not impose an income tax, so instead, they can receive a deduction for sales taxes paid. Sales tax paid on large purchases (such as vehicles) can lead to significant deductions.”
Ask for help—and amend prior tax returns if you need to.
While you may feel like a tax mastermind, it can be easy to miss deductions and credits you may not be aware of, costing you big bucks on your refund. This is especially true if you’re a small business owner. “I’ve personally seen small business returns that missed significant deductions because the business owners simply weren’t aware that the expenses were deductible. In one case, I saw a business owner who missed out on over $10,000 in deductions because they weren’t aware that they could deduct their health insurance premiums, interest on a loan, or fees related to working capital loans from their payment processor,” Brummond revealed. That said, if you do need help, be sure to ask for it, otherwise your accountant or tax preparer may just assume you’ve nailed it yourself. “Most accountants or tax preparers are going to fill out your return with the numbers you give them. They’re probably not going to ask follow-up questions. Typically, you have to ask for extra help,” Brummond says. “You have to say, ‘Here’s what I have. Can you look this over and help me figure out if I might be missing something?’ In my experience, you only get that type of focused help when you work with a local tax preparer. That’s just not something most people get from big accounting firms.” If, when working with an accountant or tax preparer, you find that you’ve been missing deductions or credits previously, you may still be able to get that money back if you take action. “If you have been missing deductions, go back and amend your old returns. You have three years from the due date or the date filed to make changes, and if you missed something, you should definitely go back and adjust that,” Brummond recommended. “If you forgot to claim a deduction, you will typically get money back from the IRS. It’s not a fast process—right now, the IRS is taking about a year to process amended returns—but it’s definitely worth the effort.” Next, planning to spend your tax refund? Here are eight ways to avoid Tax Day scams!
