How to Get More Money From Your Tax Return

Optimizing a tax return involves strategic financial planning to potentially reduce the amount of income subject to taxation or to increase the refund received. Understanding the various components of the tax system, from different income types to available tax benefits, can help individuals make informed decisions. The goal is to identify and utilize opportunities that align with tax regulations, ultimately leading to a more favorable financial outcome at tax time.

Understanding Taxable Income and Adjustments

Taxable income represents the portion of your gross income that the Internal Revenue Service (IRS) subjects to taxation. Gross income encompasses nearly all earnings from various sources, including wages, salaries, self-employment income, interest, dividends, and rental income. This broad definition means most money received during the year is considered income for tax purposes.

From your gross income, certain allowable subtractions, known as “adjustments to income” or “above-the-line” deductions, are made to arrive at your Adjusted Gross Income (AGI). AGI is a foundational figure because it impacts eligibility for many tax credits and deductions. Reducing your AGI can lead to a lower tax bill or a greater refund.

Common adjustments to income include contributions to traditional Individual Retirement Accounts (IRAs), which for 2024 allow a deduction of up to $7,000 for most individuals, or $8,000 if aged 50 or older. Payments of student loan interest are also deductible, up to a maximum of $2,500, though this deduction phases out for higher incomes. Contributions to a Health Savings Account (HSA) also serve as an adjustment, providing a tax-advantaged way to save for medical expenses. Self-employed individuals can deduct one-half of their self-employment taxes as an adjustment to income.

Identifying Eligible Deductions

After calculating Adjusted Gross Income (AGI), taxpayers further reduce their taxable income through deductions. The choice typically involves either taking the standard deduction or itemizing deductions. Most taxpayers find the standard deduction to be the more beneficial option due to its simplicity and increased amounts.

For the 2024 tax year, the standard deduction amounts are $14,600 for single filers and married individuals filing separately, $29,200 for married couples filing jointly and qualifying surviving spouses, and $21,900 for heads of household. Additional standard deduction amounts are available for taxpayers who are aged 65 or older or who are blind.

Itemized deductions are a collection of specific expenses that, when totaled, may exceed the standard deduction, thereby providing a larger tax benefit. These are reported on Schedule A (Form 1040). Common itemized deductions include home mortgage interest and state and local taxes (SALT), which can be deducted up to an annual limit of $10,000 ($5,000 if married filing separately). Medical expenses exceeding 7.5% of your AGI can also be deducted. Charitable contributions made to qualified organizations are another potential itemized deduction.

Claiming Valuable Tax Credits

Tax credits directly reduce the amount of tax owed, providing a dollar-for-dollar reduction in tax liability. This differs from deductions, which reduce taxable income. Some credits are even refundable, meaning they can result in a refund even if no tax is owed.

The Child Tax Credit (CTC) can provide up to $2,000 per qualifying child for the 2024 tax year. To qualify, the child must generally be under 17 at the end of the tax year, be your dependent, and have a valid Social Security number. Families with certain annual incomes can qualify for the full credit, with a partial credit available for higher incomes. A portion of the Child Tax Credit is refundable, potentially allowing taxpayers to receive a refund even if they owe no tax.

The Earned Income Tax Credit (EITC) is a refundable credit designed for low to moderate-income working individuals and families. Eligibility and the credit amount depend on factors such as income level, filing status, and the number of qualifying children. Education credits, such as the American Opportunity Tax Credit and the Lifetime Learning Credit, can help offset the costs of higher education. The Child and Dependent Care Credit assists taxpayers with expenses incurred for the care of a qualifying child or dependent to allow the taxpayer to work or look for work. Various energy efficiency credits are also available for homeowners who make qualifying improvements to their homes, such as installing solar panels or energy-efficient windows.

Keeping Accurate Records

Maintaining accurate and organized records is fundamental for substantiating all income, adjustments, deductions, and credits claimed on a tax return. These records serve as proof in the event of an inquiry or audit by the IRS. A systematic approach to record-keeping can simplify the tax preparation process and provide peace of mind.

Essential documents to retain include W-2 forms from employers, 1099 forms for various types of income (such as independent contractor earnings, interest, or dividends), and 1098 forms for mortgage interest paid. Receipts for deductible expenses, such as medical costs, charitable contributions, or business-related outlays, are also crucial. For self-employed individuals, mileage logs detailing business travel are necessary.

Bank statements and investment statements provide comprehensive records of financial transactions and can support reported income and expenses. The general recommendation is to keep tax returns and supporting documents for at least three years from the date you filed your original return or two years from the date you paid the tax, whichever is later. Records related to property, like a home, should be kept until the property is sold. Organizing these documents, either physically in labeled folders or digitally with clear file names, ensures easy access when needed.

Final Review Before Filing

A thorough final review before submitting a tax return is a step to ensure accuracy and completeness. This process helps identify potential errors that could delay processing or lead to future complications. It is important to confirm that all personal identifying information, such as names and Social Security numbers, is correct for every individual listed on the return.

Verifying the chosen filing status is also essential, as it impacts the standard deduction amount and eligibility for certain credits. Taxpayers should ensure that all relevant income forms, including W-2s, 1099s, and 1098s, have been accounted for and their information accurately transcribed onto the tax return. A comprehensive check for mathematical errors is advised, as even minor calculation mistakes can lead to discrepancies. Considering a professional review by a qualified tax preparer can provide an additional layer of scrutiny.