10 Tips for Getting the Biggest Tax Refund

If you're employed full time at a company, one of the first things you did when you were hired was fill out IRS W-4 tax form. The information you provide on the W-4 determines how much money is withheld from your paycheck each pay period and paid toward your personal income taxes. The calculation is based on the number of exemptions you claim. The more exemptions you claim, the less money is withheld for tax purposes. (Remember that your personal exemption was removed with the 2017 tax law reforms, so the exemptions you're taking will be for other family members.)

If your goal is to increase the dollar amount you receive in your tax refund, you can go to the human resources department and request to change your W-4 tax form. When you reduce the number of exemptions on that form, then a larger amount of money will be withheld from your check each payday. Your tax refund will therefore be larger. The times of year you're allowed to make this change are dependent on your company's policies, but generally, it may be made any time of year.

If you need help figuring out how many exemptions you should claim based on the size of your family and your income (including jobs held by a spouse), use the IRS withholding calculator. Keep in mind that the calculator is designed to help taxpayers "break even" by withholding the exact right amount of tax from each payment so they don't owe money in April or receive a big refund check. If you want a bigger refund check, decrease the number of qualified exemptions and more tax will be withheld during the year.

If you give generously to charitable organizations throughout the year, you can deduct the value of those donations from your taxable income, which could increase your refund check. Not only can you deduct cash donations to qualified charitable nonprofit organizations (including churches and other religious groups), but you can deduct the cash value of physical donations like clothing, electronics, art or real estate. You can even deduct the mileage used to drive your car as a volunteer for a charitable organization.

To be able to deduct charitable donations, though, you need to itemize your deductions. In the past, around 30 percent of taxpayers chose to itemize their deductions rather than taking the lump-sum standard deduction offered by the IRS, but that number was cut in half after the 2017 Tax Cuts and Jobs Act nearly doubled the standard deduction (for the 2021 tax years, the standard deduction is $12,550 for individuals and $25,100 for married couples filing jointly) [source: Horan].

Still, if you make significant charitable donations in a single tax year, it may be worth itemizing. Keep in mind that tax-deductible donations must be made to a nonprofit that can prove its 501(c)(3) tax status. Most legitimate charities state clearly on their websites or in their literature that they're 501(c)(3) nonprofits, so it's usually simple to verify.

Another requirement is that you must keep a receipt. Again, legitimate nonprofits have systems in place to ensure that they'll give you receipts for any and all donations. You also can't technically give all your money away to charity and expect it to be tax-deductible. In general, you can only deduct up to 50 percent of your adjusted gross income in charitable donations. As with all financial planning and tax decisions, it might be best to see a professional accountant to be sure you don't exceed the maximum.

Filing status, such as single, head of household, married filing separately or jointly, and others, can greatly influence the amount of money you receive in your refund. This is mostly because each different filing status qualifies for a different standard deduction. Depending on your financial and family situations, you'll want to pick a filing status that minimizes your tax burden and increases your chance of a refund.

In general, married couples should expect a larger tax refund if they file jointly. Filing a joint return qualifies you for that $25,100 standard deduction and can offer some tax breaks unavailable to those filing separately. If you're married but file separately, the deduction is $12,550 each [source: IRS].

There are some situations, however, in which a couple may choose to file separately. Andy Lafond, a CPA and accounting professor at Lasalle University, says one reason to file separately is if one spouse earns considerably less and also has a lot of unreimbursed medical expenses.

In that case, filing separately allows the lower-earning spouse to deduct more of those medical expenses, because the IRS only allows you to deduct expenses in excess of 7.5 percent of adjusted gross income. [source: IRS].

Lafond also sees a lot of taxpayers lose out on tax savings because they file as individuals instead of head of household. Single parents, for example, shouldn't file as individuals if they have one or more children living with them at least six months out of the year. Same with people who are taking care of an elderly parent or relative. If you are financially responsible for that person and they live with you at least half the year, then you qualify as a head of household. Heads of household get an $18,800 standard deduction compared to $12,550 for individuals [source: IRS].

No one has children just for the tax breaks, but it's a nice perk. In the past, parents could cash in on dependent children in two big ways: the personal exemption and the Child Tax Credit. Unfortunately, the Tax Cuts and Jobs Act of 2017 got rid of the personal exemption, which allowed taxpayers with families to deduct a generous $4,050 each for both parents and another $4,050 each for every dependent child under 19 years old, plus full-time students between 19 and 23 years old.

The good news is that the federal government significantly raised the value of the Child Tax Credit. For the 2021 tax year, children ages 5 and under qualify for a $3,600 credit and children 6 to 17 qualify for a $3,000 credit (those amounts may be lowered for high-income earners) [source: IRS].

The Child Tax Credit is much more valuable than the personal exemption because it's a credit, not a deduction. That means the full dollar value is subtracted from your final tax bill, not just your taxable income. Even better, it's a refundable credit, meaning that if your credits are larger than your tax bill, you get to keep the change.

Taking care of kids or aging parents can rack up huge expenses. Did you know that some of those expenses are deductible? If you pay someone to take care of your kids or an elderly relative while you're at work, you can reduce your tax liability and increase your refund through the Child and Dependent Care Credit.

The Child and Dependent Care Credit is important, because like the Child Tax Credit, it is subtracted from your final tax bill dollar for dollar, not deducted from your taxable income. The trick is figuring out if you qualify for this credit and how much it's worth. To qualify for the credit, you must pay for someone to take care of your dependent child (younger than 13) so that you can work (or look for work). You also can claim this credit if the child is older than 13 and mentally or physically impaired (adults who fall in these categories can be claimed also.)

There's a limit on how much of those child or dependent care expenses you can claim. For 2021, you can claim up to $8,000 in expenses for one qualifying individual or $16,000 for two or more individuals. The actual amount of the credit is only a percentage of those costs, now set at 50 percent based on your annual income. So, if you claim the maximum of $16,000 to send two kids to daycare, you'll get a credit worth $8,000 (50 percent of $16,000) [source: IRS].

One of the most recommended ways to increase your tax refund is to increase your contributions to your retirement fund. Contributing to an Individual Retirement Account (IRA) or 401(k) not only facilitates saving for retirement, but placing money into the IRA lowers the total taxable income because it comes off the top. The more you contribute to the IRA, the less of your income is subject to taxes. Generally, the lower your taxable income, the less you'll owe in taxes, and the less you owe in taxes, the greater the refund.

Be careful, though, to make the IRA contribution by the deadline, and know your limits. For tax years 2021 and 2022, you can deduct a maximum of $6,000 ($7,000 if you are 50 or older) in IRA contributions from your taxable income [source: IRS]. Consult a tax professional to ensure your IRA contributions are made on time and in the right dollar amount.

When interest rates are low, many homeowners look at refinancing their homes. Those who refinance at a lower interest rate benefit from lower mortgage payments as well as a lower amount paid over the life of the mortgage. But did you know refinancing could also bump up your tax return?

When you refinance your home, the majority of your initial monthly payments will be going toward interest on the loan. While it's no fun paying a big chunk of money in interest, all of that interest is tax deductible. In 2021, homeowners can deduct the full amount of interest on mortgage loans (including refinanced loans) up to $375,000 for individual filers and $750,000 for married couples filing jointly [source: IRS].

Of course, a lot of factors need to be considered when refinancing a home, including your new interest rate, how much you still owe on your house and its current market value.

Another option to remember is a home equity loan. The new tax law allows you to deduct the interest on a home equity loan or home equity line of credit (HELOC) as long as the money is being used to improve the house [source: IRS]. In the past, you could deduct interest paid on a home equity loan no matter what you planned to do with the money, but it's still a tax-wise way to cash in on the equity in your house.

If you've been thinking about adding solar panels to your house or buying an electric vehicle, it could do wonders for your tax refund. The 2017 tax reforms put some new limits on green tax credits, but most of the tax breaks are still in effect through 2025.

The Residential Renewable Energy Tax Credit still allows you to claim a tax credit up to 26 percent of the total cost of a home renewable energy project that was up and running by the end of 2021 [source: TurboTax]. Qualifying upgrades include installing solar panels or a solar water heater, small wind turbines or even geothermal heat pumps.

The same is true if you buy a plug-in electric vehicle like a Nissan Leaf or a Chevrolet Bolt. For most of these cars, the IRS will give you a tax credit of up to $7,500. For more popular vehicles like the Toyota Prius Prime, the credit is less, but it's still worth snapping up the tax breaks while they last [source: Edmunds].

Both the renewable energy credit and the electric vehicle credits are nonrefundable credits, meaning that they are subtracted dollar-for-dollar from your tax bill, but they won't result in a tax refund by themselves. That said, these green credits combined with other refundable tax credits can significantly boost your refund.

For many Americans, business ownership has become a path to financial freedom. Home-based business owners can deduct things like a home office, telephone, internet service and office supplies. When you start a business, the initial deductions may offer tax refunds, and as the business begins to make money, the continuing deductions lower your taxable income.

Thanks to the latest tax reforms, starting your own business makes even more financial sense. Not only can you deduct normal business expenses like the equipment you use for your business, and portions of the facilities and utilities, but you can also claim an automatic 20 percent deduction on all business income. Yup, if you are a sole proprietorship, a partnership or even an S corporation, you can claim this deduction [source: IRS]

There are some limits and exclusions to this 20-percent deduction (this is the IRS, of course). Your business can't make more than $164,900 for individual filers or $329,800 if married and filing jointly. And certain professions can't claim it, including doctors, lawyers and accountants [source: Fishman].

Just make sure you can prove to the IRS that you really have a business and are not just trying to write off expenses. If your side business never shows a profit even after several years, the IRS might flag you for an audit.

Tax planning is one of the best ways to take advantage of all these deductions and get the maximum tax refund possible. Tax planning often starts at the very beginning of the year and takes into account how much money you'll earn and how different expenses (or extra income) affect the total tax amount that you'll owe. Planning also helps you evaluate different ways of using your money to buy needed, yet tax-deductible items or make other tax-reducing investments.

A tax-planning professional (or you, if you're your own best accountant) can play with the numbers in computer software to evaluate what changes you can make to lower the tax bill, therefore upping the refund.