1. Donate to Your Favorite Charity

One of the best ways to increase your tax refund is to make a charitable donation to your favorite nonprofit organization. Since the end of the year is filled with holidays, there’s no better time to give back. There are a few different ways that you can donate to charity to help increase your tax refund. You can clean out your home and donate clothes and other goods to a center, you can give a monetary donation, or you can volunteer in-person at a qualified charitable organization. Just make sure that you understand all of the rules and regulations you need to follow to receive the deduction.

2. Focus on Self-Improvement

If you want to advance your career or simply learn a new skill, you can take a class and earn credit thanks to the Lifetime Learning Credit. If you pay for your tuition before the end of the year, you can earn a tax credit up to $2,000 depending on the price of the course. If you’re putting a dependent through school, you can utilize qualified expenses to increase your tax refund as well.

3. Claim Other Dependent Credits (OCD)

In addition to utilizing the educational tax credit, see if you qualify for Other Dependent Credits (OCD). If you support your parents or grandparents, or any other family member that’s a non-child dependent, you can take advantage of a new OCD worth up to $500.

4. Increase Your Retirement Contributions

By contributing to your retirement accounts, you’ll reduce your overall taxable income and help increase the security of your future. For the biggest impact, there are a few different retirement accounts you can make contributions to. If you have a financial advisor, work with them to determine how to maximize your contributions. If you’re working on your own, consider setting up a 401(k) or a Traditional IRA to get the most out of your contributions. Some employers match 401(k) contributions, which can make a huge difference when planning for retirement. 401(k) contributions are currently capped at about $19,500, but you can contribute an addition $6,500 a year if you’re over 50. The money is not taxed until you make a withdrawal after 60.

Traditional IRA accounts allow you to contribute pre-tax dollars. When you start making withdrawals in the future (after 60), the money will be taxed based on your current tax bracket. This gives you immediate tax benefits and helps you to improve your tax refund in any given year. A Roth IRA is a little different. It’s still a great way to make sure that you’re set for retirement, but it will not give you any tax benefits in the year you make the contributions. Instead, the money is contributed after-tax contributions which means that when you make a withdrawal after 60, the money is penalty- and tax-free. You can contribute a maximum of $6,000 in both a Traditional IRA and a Roth IRA—$7,000 if you’re over the age of 50.

If you’re self-employed, set up a SEP IRA and make annual contributions. You can contribution up to 25% of your net self-employment income, or a maximum of $57,000, as of 2020.

5. Maximize Deductions

While you’re probably utilizing a number of tax deductions already, there are many opportunities that people aren’t aware of. Look specifically at tax deductions that are recognized in the year they’re paid to get the most out of your tax refund. Everyone qualifies for different deductions, so make sure that you talk to a certified public accountant like the professionals at Del Real Tax Group to get the most out of your deductions. Some ways to maximize your deductions include medical miles, charity miles, earned income tax credit (EITC), state sales tax, child and dependent care, and more. Student loan interest also qualifies as a deduction, even if you didn’t use the loan yourself. If you’re the person who needs to pay, you can utilize the new guidelines of the 1098-E tax form under the IRS and use it as a deduction.

To make sure that you’re maximizing your deductions, it’s essential to keep thorough records throughout the year. Keep track of dates, miles, and purposes for trips taken along with the market value of donations. If you have any questions, talk to your CPA and consider having a mid-year check-in.

6. Utilize Your Flexible Spending Account

For those that have a Flexible Spending Account, consider spending the remaining money you have to avoid losing a major portion of it. You’re only about to carry over about $500 and you have a limited time to spend it, so utilize it now by scheduling any necessary doctor visits.

7. Sell Losing Investments

Analyze your investment accounts. If you have any that have depreciated, consider selling them to help offset your losses. At the end of the year, if your losses are greater than your gains, you can apply up to $3,000 of those losses against your income.

8. Defer Year-End Bonuses

If you’re getting an end of the year bonus, consider deferring it to next year. If you’re on the cusp of two different tax brackets, the extra income might bump you into the higher bracket and increase your taxes. When you defer to the next year, you’ll delay the income and give you time to offset the increase in income accordingly. Since you usually get year-end bonuses at the end of December anyway, it shouldn’t be a huge difference for your boss to wait until the beginning of January. Talk to your employer to see what their policies are and whether or not your bonus can be deferred.

9. Adjust Your W-4

A lot happens over the course of a year. If you’ve experienced any sort of life change during 2020, you can adjust your W-4 accordingly. This is especially important if you’ve gotten married, had a child, lost a job, or had a change in pay. Make sure that you adjust and refile your W-4 to avoid any problems at the end of the year.

10. Track Large Purchases

Always keep receipts for the big purchases in addition to the small ones. This is especially important when it comes to property taxes or expensive purchases that result in a high amount of sales tax. At the end of the year, you can technically deduct state, local, income, and sales tax in excess up to $10,000. To learn more about how this can help you increase your tax refund, talk to a CPA today.