A tax refund is a welcome financial treat and can be a valuable tool to pay down debt, save for retirement or buy something nice. But maximizing your tax refund isn’t just about getting more money back from the government; it’s also about taking advantage of all the credits and deductions you qualify for.
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Claim the Earned Income Tax Credit
Working persons with low to moderate incomes might benefit from the Earned Income Tax Credit. It lowers the income tax you owe and could lead to a refund.
You must apply for this tax credit each year if you match the criteria. The maximum credit in 2022 is $560 for single filers without children and $6,935 for married couples with three kids.
Making the most of your tax refund and claiming the Earned Income Tax Credit each year makes sense when you apply for the Colorado tax TABOR refund. You will be able to get a reasonable and equitable tax system as a result of this.
File as a Head of Household
If you’re single, divorced, or legally separated and have a dependent, filing as head of the household could suit you. It provides preferential tax rates and a higher standard deduction than filing as a single.
You must fulfill particular residency and relationship conditions to be the head of the household. Usually, your qualified person must reside with you for more than half the year, excluding brief absences.
Additionally, you are responsible for covering more than half the costs of keeping your house, such as utilities, property taxes, mortgage interest or rent, repairs and maintenance, food, and other costs.
A parent who lives in a care facility for the entire tax year might also be eligible to claim head-of-the-household status. However, it’s essential to check the specific rules before claiming this filing status.
File Separate Returns
When most married couples file their tax returns, they do so jointly. But there are times when filing separate returns makes sense financially.
One common reason to file separately is to maximize your deductions. For example, high medical expenses can be deducted if they exceed 7.5% of your adjusted gross income (AGI).
However, if you’re part of a couple with a lot of unreimbursed medical costs and low income, reaching the 7.5% threshold may be challenging. Filing separately might make deducting more of your unreimbursed medical expenses easier so long as you can prove that you paid them alone.
File as a Joint Filer
One of the top ways to maximize your tax refund is by filing as a joint filer. This filing status means that your income, deductions, and credits are bundled into one tax return with the same tax rate.
The most significant benefit of filing as a joint filer is getting a larger standard deduction than filing separately. This can significantly lower your taxable income.
Tax benefits like the earned income tax credit and the child and dependent care credit are another advantage of filing jointly. You can use these credits to pay for childcare or babysitting services and defray educational costs like college tuition.
However, there are some situations in which it makes more sense to file as a separate filer. For instance, if one spouse has high or unpaid student loan debt or is on an income-driven repayment plan that includes their salary in the repayment calculation, filing separately may be more beneficial.
File an Appeal
If you feel that the tax agency or the SSA has made a mistake or that your claim is unfairly denied, you may appeal the decision. To do this, you must complete a protest and mail it to the address on the letter that explains your rights.
The IRS has adopted a collection of taxpayer rights to ensure that your case is given the attention it deserves. These are woven throughout the law, regulations, and policies that govern IRS activities.
