5 Tips for a Bigger Tax Refund

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Tax filing season is in full swing and H2O’s here to help you get more of your money back! Check out these tried-and-true tax hacks and tips culled from such financial gurus as Nerd Wallet, TurboTax, Loan Mart, and more before you file.

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5 Strategies for Maximizing Your Tax Refund

Optimize Your Filing Status

The initial step towards a larger tax refund involves choosing the most suitable filing status among five options: Single, Married filing jointly, Married filing separately, Head of household, and Qualifying widow(er) with dependent child.

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While some situations may limit your filing status choice, exploring options can reveal opportunities for increased standard deductions or other tax benefits. For instance, filing separately might open up additional deductions, making it essential to evaluate what aligns best with your circumstances.

Itemize Deductions Wisely

For those eligible to itemize deductions, it presents an avenue to reduce tax liability beyond the standard deduction. Consider potential deductions like mortgage interest payments (up to $750,000 for married filing jointly) or charitable contributions.

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Planning to batch larger charitable donations every few years can be a strategic approach. Be mindful not to incur unnecessary expenses solely for the sake of itemizing but explore opportunities you might have overlooked.

Capitalize on New Tax Credits

Even if itemization isn't applicable, explore available tax credits to directly reduce your tax liability. While some credits may not be refundable, they can still offset owed taxes.

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Stay informed about new or extended credits, such as those related to purchasing electric cars, installing energy-efficient systems, or adding solar panels. Planning ahead for these credits can positively impact your future tax filings.

Harness Healthcare Savings Accounts

Contributing to a Health Savings Account (HSA) can simultaneously address healthcare expenses and reduce taxable income. HSAs allow pre-tax contributions, fostering tax-free growth and withdrawals for eligible healthcare costs.

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Similarly, if your workplace offers a Flexible Spending Account (FSA), careful planning can leverage pre-tax funds for healthcare expenses, though FSAs have limited rollover capabilities.

Maximize Retirement Contributions

Boost your tax refund while securing long-term savings by maximizing contributions to retirement accounts like 401(k)s or IRAs. These contributions can lower taxable income within specified limits. Although the actual savings depend on your tax rate, maximizing contributions, up to established maximums, offers potential tax advantages.

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Note that income thresholds may qualify you for a partial tax credit through the Retirement Savings Contributions Credit.

Key Considerations

While these strategies can enhance your tax refund, exercise caution not to let tax considerations overshadow overall financial well-being. Avoid making financial decisions solely for short-term tax benefits.

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Additionally, aim to align your tax withholding with your actual liability to prevent interest-free loans to the government. Consult with tax professionals for personalized advice tailored to your unique situation and goals.

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