It's safe to say there's not a taxpayer in the United States who doesn't want to get a tax refund from Uncle Sam. Most people do it the old-fashioned way: They prepare their income tax returns, send them to the IRS and wait for the government to cut a check.
Others, however, are a bit extreme.
Consider that in July 2014 an Alabama jury found Nina Macena, of Dothan, Alabama, guilty of conspiring to defraud the government by filing bogus tax returns to claim more than $300,000 in refunds. She also got nabbed for three counts of wire fraud and three counts of aggravated identity theft. Macena apparently gave Ivory Bolen (also from Dothan) the stolen identities, which the pair then used to file the fraudulent returns [sources: U.S. DOJ, FBI].
Then there's the case of Brigitte Jackson, a Georgia woman whom authorities arrested for trying to cash a fake state tax refund check for, gulp, more than $94 million. According to police, Jackson claimed $99 million in wages on a fake tax return, which she then used as the basis for collecting the $94 million refund. The state, sensing something amiss, cut her a check for $94,323,148 and then told her to go to the bank to cash it. As she was about to cash the check, the police swooped in and nabbed her for theft and conspiracy to defraud [source: Hastings].
You don't have to resort to such fraudulent techniques to increase the amount of money the government returns to you each tax season. All you have to do is follow these 10 simple tips.
10: Reconsider Filing Status (if You're Married)
Every year, many married couples decide to file a joint tax return, but in some cases that may not be a wise financial decision. Like many things related to income tax filing, it all depends on your circumstances. For one thing, a couple earning similar incomes and filing jointly may get nudged into a higher tax bracket.
Filing separately can boost a refund if one of the spouses has a lot of medical bills or other expenses that may be tax deductible. Deducting those expenses will allow the spouse to lower their adjusted gross income, which means he or she will be getting back more money during refund time. In addition to out-of-pocket medical bills, other expenses, such as those for business travel and job hunting, can be deducted.
On the other hand, filing separately could mean the loss or reduction of various tax credits, such as the child-tax credit.
If you're not sure, run the numbers both ways – or have your tax preparer or tax software do it for you. You'll be glad you did.
9: Get Crazy With (IRA) Contributions
Maximizing a retirement account contribution also reduces taxable income. What's great is that the IRS gives taxpayers until April 15 to claim any IRA contributions. You even have until Tax Day to set up a retirement account (although we wouldn't advise waiting until the very last minute). For the 2014 and 2015 tax years, the IRS will allow you to contribute up to $5,500 into your IRA, $6,500 if you're older than 50 (those limits apply to both Roth and traditional IRAs). However, rolling over money from one retirement account to another does not count. Moreover, the amount of the deduction is limited if you have a work-related retirement plan or you make too much money [sources: IRS, IRS].
If you have a Roth 401(k), it will have no impact on your taxable income because you are using after-tax dollars to contribute to the account.
8: Pay Attention to the Calendar
Here's something I'm doing this year. I'm paying January's mortgage payment before Dec. 31, which will allow me to deduct the additional interest from my 2014 tax return. My bank makes it easy because I take part in its mortgage accelerator program. I pay half the mortgage every other Friday. In essence, I'm always one month ahead so at the end of the year I'm making an extra payment. You don't have to do what I do, however. If you can afford it, you can make that extra payment in December yourself and it will have the same impact on your taxes. It will also help you shave off a few years on the life off the loan. In my situation, I reduced my loan payments by three years.
The point is that when it comes to taxes, watching the calendar is everything and can result in more green for you. Paying property taxes, scheduling medical treatments in the last quarter or paying state estimated taxes in December, allows you to itemize and maximize your deductions, which reduces your taxable income.
7: Claim the Earned Income Tax Credit
The earned income tax credit helps those living on low- or moderate-incomes to reduce the taxes they owe. Most tax credits are nonrefundable. That means if you're on the hook for $1,000, but qualify for a $1,500 credit, the $1,000 tax bill is erased but you'll never see the $500. This credit, however, allows you to get that $500 back as part of your refund. Pretty cool, eh?
In 2012, 27 million individuals and families took advantage of the EITC, receiving some $63 billion. In 2013, the maximum EITC was $487 with no qualifying children; $3,250 with one qualifying child; $5,372 with two qualifying children and $6,044 with three or more qualifying children. The average payout in 2013 was $2,335. Not everyone is eligible for the max, but you get the idea. Just go over the rules before you file [sources: IRS, IRS, Bell].
6: Itemize Deductions
To itemize or not to itemize? That is the question. The rule of thumb, according to those in the know, is to figure out whether itemizing home mortgage interest, home refinance expenses, state income taxes, state property taxes, medical expenses and the like will total more than the standard deduction. For 2014 taxes, the standard deduction was $6,200 for a single filer; $12,400 for a joint return and $9,100 for a head of household [sources: IRS].
According to the IRS, you may benefit from itemizing if any of the following circumstances apply to you:
- You cannot use the standard deduction.
- You racked up pricy uninsured medical and dental expenses.
- You paid interest or taxes on your mortgage.
- Your employee business expenses were unreimbursed.
- You had large uninsured casualty or theft losses.
- You gave money to charities.
More Tips for Boosting Your Tax Refund
5: Increase Withholding
In theory, the more money you make, the more taxes you're likely to owe. As any teenager or adult who's held a job in the United States knows, the amount of taxes withheld from each paycheck is determined when you fill out a W-4 form. It's simple: The more allowances you claim, the less money your employer deducts for taxes. You get one deduction for yourself, one for your spouse and one for every dependent in your household. Sometimes it makes sense for people to claim zero allowances, particularly if they're single or working multiple jobs.
If you do decrease the number of allowances, the government will take a bigger bite out of your check and return that money to you after you file in the form of a refund. To change your withholding, go to your human resources department and ask them to modify your W-4 form. Remember, you might owe Uncle Sam if your employer does not take out enough in taxes.
4: Keep Up With the Tax Code
Trying to keep up with the tax code is like trying to keep up with the Kardashians. It's mind-numbing. The federal government has its own tax code, as does every city, state, county and town that imposes taxes. The federal tax code is the ultimate authority when filing your taxes.
The IRS tries to make it easy to keep abreast of the rules by publishing instructions with your federal income tax forms. Reading and understanding what you can deduct can help you boost your tax refund. In addition, tax prep software is updated every year to make sure it's in line with current IRS guidelines just in case you're not.
3: Hire a Professional Accountant
Knowing the ins and outs of tax preparation can affect whether you get a refund or have to pay. The best thing to do is hire a professional. You can go to a commercial tax preparation company and have them do the math for you, or you can do what I do and hire an accountant who is a tax specialist.
To find one, ask a friend or someone else for a referral. Do it before tax season. Interview candidates. Ask them if they'll take you on, how much they charge, and whether they will figure out the taxes themselves or give it to an underling. Also, ask them whether they will represent you if the IRS knocks on your door. If they say no, go find someone else [source: Huddleson].
2: Deduct Health Insurance Premiums
Are you self-employed? If you answered "yes," then you may be able to deduct medical and dental health care premiums for yourself, your spouse and your dependents, and you don't even have to itemize your deductions to be eligible. Because of the way medical expenses are treated, it will lower your adjusted gross income and thereby reduce your tax payment or increase your refund.
Do note, however, that you can't deduct the premiums when determining your self-employment taxes. Moreover, you can only deduct the premiums for those months that you, or your spouse, did not participate in an employer-subsidized health plan. You also can snag the deduction if you pay health insurance premiums to your employees. Lastly, you're not allowed to claim the deduction if it exceeds the income from your business [source: TurboTax].
1: Don't Forget the Alimony
Alimony. Enough said. You can subtract from your income tax the amount you pay to your former spouse. However, you cannot deduct child support payments; noncash property settlements; payments that represent your spouse's portion of community property; money used to maintain the property or use of the property. Concurrently, you also have to claim the income from alimony [source: IRS].
Many Americans don't think about their tax bills until the new year. But there are things you need to do before Dec. 31 if you want to pay less later.
Author's Note: 10 Tips for Boosting Your Tax Refund
If you don't want to do your taxes, I suggest hiring an expert. They live for this stuff. I remember back in the day when I figured out my taxes all by myself. All I did was use the 1040EZ form and in a few weeks, I had a refund check. These days, I use an accountant. His name is Mike. I give him my expenses, deductions and income, and he prepares my taxes. It's the best $250 I spend each year, except for the one year I owed big time, but that was my fault (he said).
- Bell, Kay. "Earned income tax credit could pay off." Bankrate. (Nov. 12, 2014). http://www.bankrate.com/finance/money-guides/earned-income-tax-credit-could-pay-off-1.aspx
- Federal Bureau of Investigation. "Investigating Tax Refund Fraud." March 18, 2014. (Nov. 12, 2014). http://www.fbi.gov/news/stories/2014/march/investigating-tax-refund-fraud/investigating-tax-refund-fraud
- Hastings, Deborah. "Georgia woman files bogus $94 million tax return, gets arrested." New York Daily News. Sept. 27, 2014. (Nov. 12, 2014) http://www.nydailynews.com/news/national/ga-woman-cash-fake-94-million-tax-return-article-1.1955126
- Huddleston, Cameron. "Five Steps to Hiring a Tax Pro." Kiplinger. January 2014. (Nov. 14, 2014) http://www.kiplinger.com/article/taxes/T056-C000-S001-five-steps-to-hiring-a-tax-pro.html
- Internal Revenue Service. "EITC. Earned Income Tax Credit, Questions and Answers." (Nov. 12, 2014) http://www.irs.gov/Individuals/EITC,-Earned-Income-Tax-Credit,-Questions-and-Answers
- Internal Revenue Service . "Earned Income Tax Credit: Do I Qualify?" (Nov. 12, 2014) http://www.irs.gov/uac/Newsroom/Earned-Income-Tax-Credit-Do-I-Qualify
- Internal Revenue Service. "IRA Contribution Limits." (Nov. 12, 2014) http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics-IRA-Contribution-Limits
- Internal Revenue Service. "IRA Deduction Limits." (Nov. 12, 2014) http://www.irs.gov/Retirement-Plans/IRA-Deduction-Limits
- Internal Revenue Service. "Roth IRAs." (Nov. 12, 2014) http://www.irs.gov/Retirement-Plans/Roth-IRAs
- Internal Revenue Service. "Topic 452-Alimony Paid. (Nov. 14, 2014) http://www.irs.gov/taxtopics/tc452.html
- Internal Revenue Service. "Topic 501-Should I Itemize." (Nov. 13, 2014) http://www.irs.gov/taxtopics/tc501.html
- TurboTax. "5 Hidden Ways to Boost Your Tax Refund." 2014. (Nov. 12, 2014) https://turbotax.intuit.com/tax-tools/tax-tips/General-Tax-Tips/5-Hidden-Ways-to-Boost-Your-Tax-Refund/INF22336.html
- TurboTax. "Deducting health Insurance Premiums if You're Self-Employed. (Nov. 14, 2014) https://turbotax.intuit.com/tax-tools/tax-tips/Self-Employment-Taxes/Deducting-Health-Insurance-Premiums-If-You-re-Self-Employed/INF12128.html
- TurboTax. "Tax Deduction Wisdom—Should You Itemize?" (Nov. 14, 2014) https://turbotax.intuit.com/tax-tools/tax-tips/Tax-Deductions-and-Credits/Tax-Deduction-Wisdom---Should-You-Itemize-/INF12061.html
- TurboTax. "What is a W-4 Form?" (Nov. 14, 2014) https://turbotax.intuit.com/tax-tools/tax-tips/IRS-Tax-Forms/What-is-a-W-4-Form-/INF14815.html
- U.S. Department of Justice. "Alabama Woman Convicted of Stolen Identity Refund Fraud." July 12, 2014. (Nov. 12, 2014) http://www.justice.gov/tax/2014/txdv14747.htm