How to Increase your Tax Refund
I’m asked all the time “how can I get a bigger tax refund?” I always tell my clients that you need to find ways to lower your AGI (Adjusted Gross Income) The biggest way to lower your AGI and increase your refund is by following a few simple rules throughout the year.
1. Flexible Spending Accounts are offered by many employers. The money that is contributed to an FSA is contributed pre-tax. Check with your employer on the details but FSA’s can be used to pay for medical expenses, child and dependent care expenses. More than likely you are going to have some medical expenses such as prescriptions, exams, co-pays, or even glasses.
2. If your employer offers a 401(k), jump on it! The first reason is because when you contribute to a 401(k), you contributions are pre-tax dollars. In other words, it comes out of your paycheck before any taxes are taken out. This in itself lowers your tax bracket. Another reason to do this is because many employers offer a company match which usually goes up to a certain dollar amount. For example, if you contribute $25 per paycheck and the company offers a match, you put in $25 and the company puts in $25. (You can’t go wrong with this.)
3. Deductions are another great way to increase your tax refund. I couldn’t possibly go into each deduction so I’ll mention the biggest ones. If you can’t itemize and deduct the below items, don’t worry, you can still lower your taxable income by getting the standard deduction:
a. Medical Expenses – Save your receipts for prescriptions, doctors, dentist, optometrist visits. If it’s a medical expense, save the receipt. Most medical expenses are deductible, however, there are some that are not deductible such as cosmetic surgery or nicotine patches and gum (unless they are prescription). Oh yes, and track your mileage for medical purposes. This is another commonly missed deduction.
b. Own a home? This is another big deduction. But it would need to be the home that you live in. Your mortgage and interest statement will be a must. The interest and taxes on your home are deductible!
c. Donations. Be careful with this one. Save your receipts, cancelled checks, and avoid making donations in cash. You would have a hard time proving that you donated cash (even to your church). Also, not all donations are tax deductible. If you donate to your child’s football team or cheerleading camp, you have done a great thing to help them out but you can not deduct it from your taxes. For donations of clothing and household goods to the Salvation Army or Goodwill, keep a list of all the items you donated. They must be in good or better condition to take the deduction. Also, in order to determine the amount of deduction you have to consider the FMV (Fair Market Value) of the items. Since it is used, you would need to figure what someone would pay for these items in a thrift shop or yard sale.
Remember, these are NOT the only deductions that you can take but can generally make the biggest impact. One of the most common things that I hear is “the other guys didn’t ask me those questions, I guess I’m out of luck on previous tax years”. This is far from the truth. You can amend your returns up to three years so if you keep good records, you can still collect on previous years. Even if you have already received a refund.