How to Get the Most Money Back on Your Taxes

A tax refund is money returned to a taxpayer who has paid more in taxes than their actual liability. Many taxpayers aim to maximize this refund. Understanding tax credits and deductions can help individuals achieve this.

Understanding Common Tax Credits

Tax credits directly reduce the amount of tax owed, dollar-for-dollar. Unlike deductions, which lower taxable income, credits provide a direct reduction of your tax bill. A $100 tax credit saves you $100 in taxes, regardless of your tax bracket. Some credits are refundable, meaning you can receive money back even if you owe no tax.

The Child Tax Credit (CTC) offers up to $2,000 per qualifying child for the 2024 tax year. To qualify, the child must be under 17 at year-end, have a Social Security number, and be claimed as a dependent. Up to $1,700 per child for 2024 can be refundable through the Additional Child Tax Credit (ACTC), allowing a refund even if it exceeds your tax liability. The Earned Income Tax Credit (EITC) is another refundable credit for low-to-moderate income workers. Eligibility depends on income, filing status, and number of qualifying children, with maximum amounts ranging from $632 to $7,830 in 2024.

Education credits help offset higher education costs. The American Opportunity Tax Credit (AOTC) provides up to $2,500 per eligible student for the first four years of post-secondary education. This credit is calculated as 100% of the first $2,000 of qualified expenses and 25% of the next $2,000; up to $1,000 can be refundable. The Lifetime Learning Credit (LLC) offers up to $2,000 for qualified education expenses, but is non-refundable and applies to a broader range of education, including graduate courses and courses to acquire job skills.

The Child and Dependent Care Credit provides relief for childcare expenses. This credit applies to costs paid for the care of a qualifying person to allow the taxpayer to work or look for work. For 2024, maximum expenses are $3,000 for one qualifying person and $6,000 for two or more. The credit amount ranges from 20% to 35% of these expenses, depending on adjusted gross income. Homeowners making qualifying energy-efficient improvements may also be eligible for specific credits, which provide a direct reduction in tax liability for a portion of eligible expenses.

Maximizing Available Deductions

Tax deductions reduce your taxable income, lowering your overall tax bill. Taxpayers have two options: taking the standard deduction or itemizing. Most taxpayers opt for the standard deduction, a fixed amount based on filing status. For 2024, the standard deduction is $14,600 for single filers or married filing separately, $29,200 for married couples filing jointly or qualifying surviving spouses, and $21,900 for heads of household.

Itemized deductions are specific eligible expenses subtracted from income if their total exceeds the standard deduction. Common itemized deductions include medical and dental expenses exceeding 7.5% of adjusted gross income, state and local taxes (SALT) up to a $10,000 cap, and home mortgage interest. Taxpayers can deduct interest on up to $750,000 of mortgage debt for loans incurred after December 15, 2017, on a primary or second home. Charitable contributions to qualified organizations can also be itemized, often deductible up to 60% of adjusted gross income, provided proper documentation is maintained.

Certain expenses are “above-the-line” deductions, reducing your adjusted gross income (AGI) and taken even if you claim the standard deduction. These include student loan interest, allowing a deduction of up to $2,500 of interest paid on qualified student loans in 2024, subject to income limitations. Educators can also deduct up to $300 in unreimbursed classroom expenses for 2024. This applies to teachers, instructors, counselors, principals, and aides working at least 900 hours in a K-12 school. Contributions to tax-advantaged accounts like traditional IRAs and HSAs are often deductible, reducing current taxable income.

Key Information and Record Keeping

Accurate tax preparation relies on meticulous record keeping. Maintaining organized financial documents simplifies filing and ensures all eligible credits and deductions are claimed and supported. This proactive approach helps prevent errors and provides necessary documentation if the IRS requests verification.

Essential income statements include Form W-2 from employers, detailing wages and taxes withheld. For other income sources like freelance work, interest, or dividends, taxpayers should receive various Form 1099s (e.g., 1099-NEC, 1099-INT, 1099-DIV). For self-employment income, accurate records of all revenue and business expenses are important.

For deductions, keep receipts and statements for all qualifying expenses. This includes records for medical and dental expenses, property tax bills, and mortgage interest statements (Form 1098). For charitable contributions, maintain donation receipts, bank statements, or written acknowledgements from the organization, especially for cash contributions. If considering itemizing, a detailed log of these expenses is invaluable.

Records supporting tax credits are important. For education credits, retain Form 1098-T from educational institutions, along with receipts for books and supplies. For the Child and Dependent Care Credit, keep records of payments made to childcare providers, including their name, address, and taxpayer identification number. Social Security numbers for all individuals claimed on the tax return, including dependents, are a requirement for accurate filing.

Strategic Tax Planning Throughout the Year

Proactive tax planning can optimize your financial situation and potentially increase your refund. This involves making informed decisions beyond just gathering documents at tax time.

Adjusting tax withholding is a key step. Employees can use the IRS Tax Withholding Estimator to determine the appropriate amount of federal income tax to withhold via Form W-4. Adjusting withholding prevents overpayment, which leads to a large refund but less money available throughout the year, or under-withholding, which could result in taxes owed.

Maximizing contributions to tax-advantaged accounts is a strong strategy. Contributions to a 401(k) or traditional IRA can reduce current taxable income, as these are often tax-deductible. Health Savings Accounts (HSAs) offer a triple tax advantage: contributions are tax-deductible, earnings grow tax-free, and qualified withdrawals are tax-free. These accounts provide current tax savings and future financial benefits.

Strategic charitable donations also play a role in tax planning. While cash contributions are deductible up to 60% of AGI for itemizers, donating appreciated assets held for over a year, such as stocks, offers a double tax benefit. This allows the donor to avoid capital gains tax on the appreciation and deduct the asset’s fair market value.

Considering the tax implications of major life events is important for year-round planning. Events like marriage, the birth or adoption of a child, or purchasing a home can alter a taxpayer’s financial and tax situation. For instance, marriage changes filing status options and potentially affects tax brackets, while having a child opens eligibility for credits like the Child Tax Credit.

For self-employed individuals or those with significant income not subject to withholding, making estimated tax payments throughout the year avoids penalties. These payments ensure tax obligations are met as income is earned, rather than facing a large tax bill at year-end.