How To Maximize Your Tax Return

If you do itemize, some common tax deductions include homeownership-related ones, medical expenses, and charitable donations.

• Homeownership: Some of the tax deductions you may qualify for as a homeowner include mortgage interest, points, and property taxes.
• Medical: The Internal Revenue Service (IRS) allows a deduction for medical expenses that exceed 7.5% of your adjusted gross income (AGI). So, for example, if your AGI is $100,000, and you spent $10,000 in out-of-pocket medical expenses (7.5% of your AGI is $7,500 in this case), then you can deduct $2,500. 
• Charity: If you itemize, you can usually write off up to 20% to 60% of your adjusted gross income for charitable contributions.

“But there are also above-line deductions that are often overlooked,” Reams says. Above-line refers to deductions that are available whether a taxpayer itemizes or takes the standard deduction. For example, student loan interest, educator expenses, and Health Savings Account (HSA) contributions are deductions that don’t require you to itemize.

In addition to the well-known tax deductions, there are also some overlooked deductions to consider. A couple of examples:

• Gambling losses: Your losses are fully deductible, up to your gambling winnings. “This means you can, in fact, deduct the $100 lost betting on the Jets, assuming you also gained $100 betting on the Chiefs,” says Fred Freifeld, certified public accountant (CPA) and principal of tax and accounting services for Fiske & Company in South Florida.
• Small business expenses: If you’re a small business owner, self-employed, or a freelancer, you may be able to deduct some of your home expenses if you work out of a home office, some of your business travel, and even health insurance premiums.

Deductions May Have Eligibility Criteria or Require Documentation.

For example, for tax year 2024, student loan interest deduction begins to phase out for taxpayers with modified adjusted gross income (MAGI) of more than $80,000 ($165,000 for joint returns), and is completely phased out for taxpayers with MAGI of $95,000 or more ($195,000 or more for joint returns).

As far as documentation goes, you’ll want to keep the relevant paperwork and receipts for any deductions you’re claiming, such as medical bills, casino loss statements, business purchases records, etc.

Explore Tax Credits

A tax credit is different from a tax deduction. While a deduction reduces taxable income and therefore results in a marginally lower tax bill, a tax credit is a direct dollar-to-dollar reduction of your tax bill.

In addition, there are two types of tax credits. Refundable tax credits are entirely refundable, meaning if your tax bill is reduced to zero, then any remaining dollars from a refundable credit are sent to you, courtesy of the U.S. Treasury.

Nonrefundable tax credits can reduce your tax bill down to zero, but anything left in the credit beyond that will not be paid to you.

Some popular tax credits can significantly increase tax refunds. These include:

• Child Tax Credit: The Child Tax Credit is for parents with children under the age of 17 at year’s end. For the 2024 and 2025 tax years, the credit is $2,000, with a refundable amount of $1,700, for each qualifying child if you earn up to $200,000 as an individual filer or $400,000 for joint filers. The benefit phases out with higher incomes.
• Child and Dependent Care Credit: This tax credit is offered to taxpayers who pay out-of-pocket expenses for child care for an individual 12 or younger as of year’s end. It can also be applied if you need care for a disabled spouse, or a qualified dependent. The credit equals a percentage of work-related expenses you paid someone to care for your child or another qualifying person. 
• Earned Income Tax Credit: The earned income tax credit (EITC) helps low- to moderate-income workers and families get a tax break. For tax years 2024 and 2025, the maximum credit amount is $7,830 and $8,046, respectively. Some of the qualifications include having worked and earned income under $63,398, and having investment income below $11,000.
• Energy-Efficient Home Improvements: The Residential Clean Energy Credit offers 30% of the costs of new, qualified clean energy technology installed in your home anytime from 2022 through 2032. 

Maximize Contributions to Retirement Accounts

Contributions you make to certain retirement accounts like traditional individual retirement accounts (IRAs) or 401(k)s are excluded from your taxable income, resulting in a lower tax liability, says Freifeld. So, let’s say you earned $100,000, but you contributed $20,000 to your 401(k); your taxable income would be $80,000.

If you have the financial means, it benefits you tax-wise to bump up your retirement contributions as close to the maximum allowed as possible.

Consider Adjusting Withholding

When taxes are taken out of your paycheck, it’s your employer withholding the money for your income taxes and paying the IRS on your behalf. Form W-2, Wage and Tax Statement, lists your wages paid and amounts withheld.

If you didn’t request enough withholding, you may end up owing; if you withhold too much, you may get a refund. Ideally, you should aim to withhold just the right amount, but the IRS reports that about 70% of taxpayers withhold too much every year.

Though it might feel nice to get a tax refund, withholding too much is like giving the government a free loan while lowering your take-home pay. And if you don’t withhold enough, you can be hit with a surprise tax bill.

To decide if you should make adjustments to your tax withholding, you can use the IRS’ Tax Withholding Estimator tool.

If you think you want to make an adjustment to the amount withheld, you’ll have to fill out IRS Form W-4 and give it to your employer. The earlier in the year you make the adjustment, the more impact it will have on your tax return.

Utilize Tax Planning Strategies

When you make financial decisions through the lens of tax planning, you can end up keeping more of your income and pay less to the government. Here are a few strategies to think about:

Time Your Income and Expenses

Self-employed people who had a high-earning year might push off invoicing for some work to the next calendar year, or stock up on extra business supplies at the end of the year to increase their deductions. Others might wish to make a lump sum of charitable donations before the end of the year.

Utilize Tax-Efficient Investments 

Where you put your money could have an impact on your tax bill. For example, if you simply put $20,000 into a savings account, the only tax implications might be that you’ll have to pay tax on any interest earned.

On the other hand, if you put $20,000 into various tax-advantaged accounts like IRAs or HSAs instead, that amount will reduce your taxable income.

Move to a Tax-Friendly Location

If you’re planning to move when you retire or for any reason, you might consider a state that has more favorable tax treatment, such as no state income tax. This can help you keep more of your money, which can be a big deal if you’re on a fixed income.

Contribute to Your Health Savings Account

HSAs are unique accounts in that they have numerous tax advantages. First, you can make pretax contributions through payroll deductions, which will lower your taxable income. You can also make direct contributions to an HSA, which is 100% tax-deductible from your income.

For 2024 (the tax return that you’ll file in 2025), the maximum HSA contribution is $4,150 for an individual and $8,300 for a family. And if you are age 55 or older, you can make a $1,000 catch-up contribution.

Seek Professional Tax Advice

DIY tax software can make filing your own tax return a very efficient process, but it still might benefit you to consult with a tax professional. “A tax professional can assist in taking advantage of every available deduction and credit to reduce your tax liability,” Freifeld says.

This is especially true if you want to itemize, are self-employed, experienced a major life event this year, or made a lot of investments.

What’s more, a good tax professional, in tandem with a financial advisor, can help you with tax planning strategies moving forward as well as provide ongoing personalized advice as your financial situation evolves.

To find a reputable tax professional, start by asking friends, family, and colleagues for referrals. Visit the website for the local Chamber of Commerce for leads. You can also ask or search in online community groups if you’re new to an area.

Once you have a few names, get on the phone to ask any questions you may have, but also to get a feel for the person’s demeanor. You want to work with someone who is a good fit for you.

You can also check out the tax professional online to see their website, read customer reviews, and consider other information about them that you may find.

The Bottom Line 

You work hard for your money, so you may as well try to keep as much of it as legally possible. Understanding how taxes work, using the rules to your advantage, and consulting with tax professionals can help you optimize your tax return, maximize your tax refund, and develop smart tax planning strategies.