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Why Did I Make Less Money This Year

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Ways to Increase Your Tax Refund You Never Thought About

Updated for Tax Year 2021 / October 17, 2021 11:06 AM


OVERVIEW

Laying the groundwork for a tax refund requires some simple tax planning, a little research and some forethought. Reviewing your tax status, consulting your spouse when filling out your W-4s and taking advantage of several tax credits can help you increase your tax refund. TurboTax also can help decide which credits can get you the biggest refund.


For information on the third coronavirus relief package, please visit our "American Rescue Plan: What Does it Mean for You and a Third Stimulus Check" blog post.


How to increase your tax refund


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Review your W-4: Bigger refund or bigger paycheck?

When you start a job, your employer asks you to complete form W-4. This tells your employer how much federal income tax to withhold from your paycheck. Depending on what amount of income and which credits you specify on the W-4, the more or less tax will be withheld. Having less taken out will give you bigger paychecks, but a smaller tax refund (or potentially no tax refund or a tax bill at the end of the year).

Factors to consider when completing your W-4 include:

  • Claiming credits such as the Child Tax Credit and the Other Dependent Credit will decrease the amount of your withholding
  • Adjusting for more withholding if you have additional income a second job or investments
  • Adjusting for less withholding if you are expecting to claim itemized deductions rather than the standard deductions
  • Any additional income tax you would like withheld from each paycheck

Specifying more income on your W-4 will mean smaller paychecks, since more tax will be withheld. This increases your chances of over-withholding, which can lead to a bigger tax refund. That's why it's called a "refund:" you are just getting money back that you overpaid to the IRS during the year.

By stating that you will be getting certain credits or deductions will mean bigger paychecks and likely a smaller refund (or perhaps owe some additional tax).

You can use a W-4 Withholding Calculator to help you estimate what you should enter on your W-4.

Revisit your filing status

Choosing the filing status that best suits your needs can influence the possibility of a refund. Your filing status determines:

  • Your standard deduction
  • Your filing requirements
  • The credits you are eligible to receive
  • The amount of tax you pay or the refund you receive

There are five statuses to choose from, but the most common are:

  • married filing jointly or separately
  • single
  • head of household

TurboTax can help you determine which choice most benefits your situation.

Claim the Earned Income Tax Credit

Working families, individuals, people who are self-employed and others who have a moderate to low income may qualify for the Earned Income Tax Credit. The EITC decreases the amount of taxes owed and may qualify you for a tax refund. To qualify, you must:

  • Have a valid Social Security number
  • Be a U.S. citizen, a year-long resident alien or a non-resident alien married to an American citizen or resident alien filing jointly
  • Have income from self-employment, from an employer or from working on a farm
  • Not be a claimed dependent or child of another person
  • Have a qualifying child and be between the ages of 25 and 65, living in the U.S. for at least half the year

To receive the EITC you must file a tax return, even if you owe no taxes.

Include the Child and Dependent Care Credit

The Child and Dependent Care Credit is based on a percentage of the amount you paid for the care of a qualifying child or dependent.

For tax year 2020,the total expenses you can claim are capped at $3,000 for one eligible individual and $6,000 for two or more. If your employer offers dependent care benefits, you are required to deduct this amount.

For 2021, the American Rescue Plan brings significant changes to the amount and way that the child and dependent care tax credit can be claimed. The plan increases the amount of expense eligible for the credit, relaxes the credit reduction due to income levels, and also makes it fully refundable.  This means that, unlike in other years, you can still get the credit even if you don't owe taxes.

For tax year 2021 (the taxes you file in 2022):
  • The amount of qualifying expenses increases from $3,000 to $8,000 for one qualifying person and from $6,000 to $16,000 for two or more qualifying individuals
  • The percentage of qualifying expenses eligible for the credit increases from 35% to 50%
  • The beginning of the reduction of the credit is increased from $15,000 to $125,000 of adjusted gross income (AGI).

Also for tax year 2021, the maximum amount that can be contributed to a dependent care flexible spending account and the amount of tax-free employer-provided dependent care benefits is increased from $5,000 to $10,500.

A qualifying individual is:

  • Your child who is under 13 years of age
  • A dependent who is physically or mentally incapable of self-care and who lives with you for more than half the year, or
  • Your spouse who is incapable of self-care and lives with you for more than half the year

To claim the credit, other criteria must be met.

  • If you're married, you are required to file a joint return.
  • You can't use a caregiver who is a spouse or parent of the child, your child under 19 years of age or another of your dependents.
  • Each qualifying dependent and child must have a Social Security number added to your return.
  • You must provide the name, address and Social Security number of your caregiver.

Use TurboTax to help ensure you don't miss any of the deductions or credits you deserve, so you get your biggest refund, guaranteed.

All you need to know is yourself

Just answer simple questions about your life, and TurboTax Free Edition will take care of the rest.

For Simple Tax Returns Only

The above article is intended to provide generalized financial information designed to educate a broad segment of the public; it does not give personalized tax, investment, legal, or other business and professional advice. Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business.

Why Did I Make Less Money This Year

Source: https://turbotax.intuit.com/tax-tips/tax-refund/ways-to-increase-your-tax-refund-you-never-thought-about/L8TORnBZy

Posted by: alcantarlexiskings.blogspot.com

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