Who doesn’t love a refund? While filing taxes isn’t your favorite thing, getting some money back helps ease the pain. Before you get there, you need to know about the tax credits and deductions available to you. Having a solid understanding of your personal tax landscape is a key element of financial wellness. So let’s break down the key opportunities you shouldn’t miss and explore how to track your refund once you’ve filed.
What’s a Tax Credit?
It never hurts — and often helps — to start with the basics. While as a taxpayer you know the term “tax credit,” maybe you can’t exactly define it. No worries! This isn’t uncommon. Tax terminology can be confusing.
A tax credit is a dollar-for-dollar reduction in your tax bill. Contrast this with a deduction, which only lowers your taxable income. For example, a $1,000 tax credit saves you exactly $1,000 in taxes, while a $1,000 deduction might only save you a few hundred dollars, depending on your tax bracket.
There are multiple tax credits that can significantly reduce what you owe or increase your refund:
Child Tax Credit
Parents should pay special attention to this one. For 2024, this credit provides up to $2,000 per qualifying child under 17. If your income is below certain thresholds, a portion of this credit may be refundable, meaning you can receive it even if you don’t owe taxes.
Earned Income Tax Credit
This credit benefits low- to moderate-income workers and families. The amount varies based on income, filing status, and number of children, but it can be worth up to $7,430 for families with three or more qualifying children. Even individuals without children may qualify for up to $600.
American Opportunity Tax Credit
Students and parents should explore this credit, which offers up to $2,500 per eligible student for qualified education expenses. The best part? Up to $1,000 of this credit is refundable, potentially increasing your tax refund.
Child and Dependent Care Credit
If you paid for childcare or dependent care while working or looking for work, you might qualify for this credit. It covers up to 35% of qualifying expenses, with maximum credits of $3,000 for one dependent or $6,000 for two or more.
Tax Deductions
As we touched on above, a deduction lowers your taxable income. One of the benefits of deductions is they can potentially push you into a lower tax bracket.
Standard Deduction vs. Itemizing
A standard deduction is a set amount, a flat-rate deduction that most taxpayers take instead of itemizing. The benefit of the standard deduction is that it requires no documentation and could be higher than the amount you’d deduct by itemizing, which requires you to list out individual deductions (more on those below).
For 2024, the standard deduction is $14,600 for single filers and $29,200 for married couples filing jointly. However, if your itemized deductions exceed these amounts, you might save more by itemizing.
Common itemized deductions
- Mortgage interest payments
- State and local taxes (up to $10,000)
- Charitable contributions
- Medical expenses exceeding 7.5% of your adjusted gross income
- Student Loan Interest Deduction: You can deduct up to $2,500 in student loan interest payments, even if you don’t itemize. This is known as an “above-the-line” deduction and is available to qualified borrowers regardless of whether they take the standard deduction.
- Self-Employment Deductions: If you’re self-employed or have a side gig, don’t overlook business-related deductions, like home-office expenses, business-related travel and meals, professional development costs, health insurance premiums, and retirement plan contributions.
Tracking Your Refund
Once you’ve filed your taxes, the waiting game begins. Here’s how to track your refund:
Use the IRS “Where’s My Refund?” Tool
Visit the IRS website or download the IRS2Go app to check your refund status. You’ll need: Your Social Security number Your filing status The exact refund amount you’re expecting
The IRS typically issues refunds within 21 days of accepting your return. However, several factors can cause delays, such as errors on your return, claims for certain credits (especially EITC and Additional Child Tax Credit), identity verification requirements, or manual review of your return.
Tips to Speed Up Your Refund
File Electronically. E-filing is faster and more accurate than paper filing. The IRS typically processes electronic returns within 24-48 hours, while paper returns can take weeks to enter the system.
Choose Direct Deposit. Having your refund directly deposited into your bank account is the fastest way to receive it. You can split your refund between up to three accounts, making it easier to save or invest a portion automatically.
Double-Check Your Information. Simple errors like incorrect Social Security numbers or math mistakes can delay your refund. Review everything carefully before submitting.
What to Do If Your Refund Is Delayed
If it’s been more than 21 days since the IRS accepted your return (or more than 6 weeks since mailing a paper return), check your tax transcript online for clues about the delay or contact the IRS directly. Consider setting up an online account at IRS.gov for more detailed information.
Planning Ahead
While waiting for this year’s refund, start planning for next year:
- Keep detailed records of potential deductions and credits
- Consider adjusting your withholding if your refund is very large
- Consult with a tax professional to identify additional opportunities
- Consider contributing to tax-advantaged accounts like IRAs or 529 plans
The overall message here is short and sweet: Knowledge is crucial to helping you get your refund. If you’re unsure about any aspects of your taxes, reach out to a tax professional who can help. There are also community organizations that offer free tax consulting. Explore your options and maximize that return!
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/Photo by Nataliya Vaitkevich: https://www.pexels.com/photo/tax-time-6863248/