All of us are constantly on the hunt for ways to make as much money as possible. In many cases, that means finding whatever legal methods we can to reduce our overall tax burden. Thanks to changes in tax laws a few years ago – and the numerous Coronavirus relief packages – there are more ways than ever to do just that. As such, here are five tips to increase your tax refund in 2021.
Increase Your Retirement Savings
The most celebrated and widely understood way to increase your tax refund is to increase your retirement savings. The vast majority of retirement plans are tax advantaged in some way, and increasing your contribution to them will mean that you can reduce your overall tax burden. However, some plans work better than others, and that is why it is always worth having a longer conversation with your CPA or work to determine which retirement plan contribution makes the most sense for you. How much of a tax deduction you can take may depend on your income.
Increase Flexible Spending Plans
Flexible savings plans exist in a variety of forms, but they often allow you to make a before-tax contribution to a separate account, then withdraw those accounts under the right circumstances. Examples include plans for medical or child care expenses, and these plans are often available through work. These plans can be hugely helpful, and making contributions to them can shield your money from taxes, thus resulting in a much higher refund.
Increase Your Charitable Giving
Charitable giving is always a fantastic way to increase the amount of tax money you receive in your refund, and the tax code has always been written to incentivize these deductions. However, thanks to recent tax changes, the value of a charitable contribution is more important than ever. Previously, you could only take deductions for charitable giving if you itemized deductions as opposed to taking the standard deduction. The 2018 tax reform package doubled the standard deduction, making it harder for many people to qualify for charitable giving deductions and thus creating a disincentive to give. However, that law was revised by changes to the CARES act, which created additional tax incentives by allowing for more charitable tax deductions, even if you take the standard deduction.
Examine The Timing Of Certain Payments
When it comes to taxes, timing is often everything. If you can alter the payment of certain items into December, instead of January, you can claim additional tax deductions. This includes a wide array of items, including retirement savings, mortgage payments, college contributions, HSA contributions and more. If you run a business or are otherwise self-employed, you should see what sort of other deductions you may qualify for, as there may be certain expenses you can push up to qualify for a bigger refund here. That’s not to say that you should spend more than you can afford on certain items, but if it is financially possible for you to do so, this may be a route worth examining.
Consult A CPA
At the end of the day, it is often better to contact an expert. Reach out to your CPA and ask what you can do in order to maximize your return. Your CPA will have the ability to review your taxes and have a better understanding of your tax situation than you may be able to glean on your own. Talking with them will likely give you a more personalized, customized perspective than you can get on your own.
The good news of recent legal changes is that it is easier than ever to get back money on your taxes – you simply have to understand how the system works and be prepared to invest the time necessary in order to get back as much money as possible. Follow these tips and you will be well on your way towards maximizing your tax refund in 2021.