How to Get More Back on Your Tax Return

When people discuss “getting more back on their taxes,” it generally refers to two primary outcomes: either increasing the amount of a tax refund or reducing the total tax liability owed. A tax refund occurs when you have paid more in taxes throughout the year than your actual tax obligation, resulting in the government returning the excess. Conversely, reducing tax owed means strategically lowering your taxable income or applying direct tax reductions, so you pay less to the government by the filing deadline.

Understanding Your Tax Baseline

Your taxable income represents the portion of your gross income that the Internal Revenue Service (IRS) subjects to taxation. This figure is determined after accounting for various adjustments, deductions, and exemptions. Gross income encompasses all money, property, or services received, including wages, bonuses, tips, investment gains, and self-employment earnings.

Choosing the correct tax filing status directly influences your tax liability and eligibility for certain tax benefits. The primary filing statuses include Single, Married Filing Jointly, Married Filing Separately, Head of Household, and Qualifying Widow(er). For instance, Head of Household status offers a more favorable tax bracket and a higher standard deduction than Single status, provided specific criteria are met.

Tax preparation involves choosing between the standard deduction and itemizing deductions. The standard deduction is a fixed dollar amount that reduces your taxable income, and it varies based on your filing status. For the 2024 tax year, the standard deduction is $14,600 for single filers and married individuals filing separately, $21,900 for heads of household, and $29,200 for those married filing jointly or qualifying surviving spouses. An additional standard deduction is available for taxpayers who are age 65 or older or are blind.

Alternatively, you can itemize deductions if your total eligible expenses exceed your applicable standard deduction amount. Itemizing involves listing specific deductible expenses, such as certain medical expenses, state and local taxes, and home mortgage interest. Most taxpayers find that the standard deduction is more beneficial or simpler to claim than itemizing. However, for those with significant deductible expenses, itemizing can lead to a greater reduction in taxable income.

Leveraging Deductions to Lower Taxable Income

Deductions reduce your taxable income and overall tax liability. These are broadly categorized into “above-the-line” deductions, which reduce your gross income to arrive at Adjusted Gross Income (AGI), and “below-the-line” deductions, which are itemized deductions taken after AGI. Above-the-line deductions reduce your AGI, which can impact eligibility for certain credits and other deductions.

Contributions to a traditional Individual Retirement Account (IRA) can be deductible, with a maximum contribution limit of $7,000 for 2024, or $8,000 if you are age 50 or older. The deductibility of IRA contributions can be limited based on income levels if you or your spouse are covered by a workplace retirement plan. Another common deduction is for student loan interest paid, allowing taxpayers to deduct up to $2,500 of interest paid on qualified student loans. This deduction phases out based on income levels.

Health Savings Account (HSA) contributions are also deductible, with limits of $4,150 for self-only coverage and $8,300 for family coverage in 2024, plus an additional $1,000 catch-up contribution for those age 55 or older. These contributions are made with pre-tax dollars, reducing your taxable income. Educators can claim an educator expense deduction for unreimbursed classroom expenses, up to $300 for 2024, or $600 for married couples filing jointly if both are eligible educators and each spent at least $300.

Below-the-line deductions, or itemized deductions, are claimed on Schedule A of Form 1040 and are only beneficial if their total exceeds your standard deduction. Common itemized deductions include mortgage interest paid on a home loan, though limits may apply based on the loan amount and date. The deduction for state and local taxes (SALT) is capped at $10,000 per household. Charitable contributions, particularly cash contributions to qualified organizations, can also be itemized. Medical expenses exceeding 7.5% of your Adjusted Gross Income (AGI) are deductible.

Maximizing Tax Credits for Direct Savings

Tax credits directly reduce the amount of tax you owe, dollar-for-dollar. Credits are categorized as either refundable or non-refundable. Non-refundable credits can reduce your tax liability to zero, but they will not result in a refund if the credit amount exceeds your tax owed. Refundable credits, however, can provide a refund even if your tax liability is zero, effectively putting money back into your pocket.

The Earned Income Tax Credit (EITC) is designed for low-to-moderate-income working individuals and families. The maximum credit varies based on income, filing status, and the number of qualifying children. The Additional Child Tax Credit is another refundable credit that may be available to families who do not receive the full Child Tax Credit.

The American Opportunity Tax Credit (AOTC) is a partially refundable credit for qualified education expenses incurred during the first four years of post-secondary education. This credit can be up to $2,500 per eligible student for qualified expenses. Up to 40% of the AOTC is refundable, meaning you could receive money back even if you owe no tax. Eligibility requires the student to be pursuing a degree or credential, enrolled at least half-time, and not have claimed the credit for more than four tax years.

Non-refundable credits also reduce your tax bill. The Child and Dependent Care Credit can help offset expenses paid for the care of a qualifying child or dependent, enabling you to work or look for work. The Lifetime Learning Credit (LLC) is another education credit, offering up to $2,000 per tax return for qualified education expenses, including courses taken to acquire or improve job skills. Unlike the AOTC, there is no limit to the number of years you can claim the LLC, and it does not require enrollment in a degree program.

The Retirement Savings Contributions Credit, also known as the Saver’s Credit, provides a credit for eligible low- and moderate-income taxpayers who contribute to retirement accounts like IRAs or 401(k)s. Newer credits, such as certain Clean Energy Credits, are also available for homeowners who make qualifying energy-efficient improvements to their residences. These credits can reduce your tax liability directly.

Adjusting Your Tax Payments

Managing tax payments throughout the year influences your tax refund or amount owed. For employees, adjusting your W-4 form is the primary method to control federal income tax withholding from your paycheck. The W-4 form allows you to specify allowances or request additional withholding, tailoring the amount of tax taken out to better match your expected annual tax liability. Reviewing and updating your W-4 is important after significant life events, such as marriage, divorce, the birth of a child, or changes in income.

If you consistently receive a large tax refund, it indicates that too much tax was withheld from your paychecks throughout the year. While a refund might feel like a bonus, it means too much tax was withheld. Adjusting your W-4 to reduce withholding can increase your take-home pay, providing more immediate access to your earnings. Conversely, if you frequently owe a substantial amount at tax time, increasing your withholding via the W-4 can help avoid a large tax bill and potential underpayment penalties.

Individuals who receive income not subject to regular tax withholding, such as self-employed individuals, independent contractors, or those with significant investment income, are required to make estimated tax payments. The IRS mandates these payments if you expect to owe at least $1,000 in federal tax for the year. Estimated taxes are typically paid in quarterly installments using Form 1040-ES. This ensures that taxes are paid as income is earned throughout the year, rather than as a single lump sum at the tax deadline.

Failing to pay enough tax through withholding or estimated payments can result in underpayment penalties. To avoid these, you generally need to pay a sufficient percentage of your current or prior year’s tax liability. Regularly reviewing your income and expenses and adjusting estimated payments accordingly helps manage your cash flow and meet your tax obligations throughout the year.