10 Ways to Maximize Your Tax Refund This Year

Time To Read 7 MIN READ

Given the CARES Act and other unique rules that impact your 2020 taxes, we asked CPA Cecilia Leung how to maximize your tax refund this year. Author of Dear Accountant: Stories, Advice and Explorations, Cecilia offered 10 ways to maximize your refund, but she reminded us that the list is far from exhaustive.

“There are so many specific deductions,” Cecilia said. “Classroom supplies. Education expenses. College tuition. Student loan interest. Mortgage interest. Medical expenses. Retirement plans. Moving expenses for active military.”

“If you take full advantage of the tax code, you can often reduce your tax liability by far more than the cost of good tax preparation services. Just make sure you’re working with someone who will listen carefully to your unique situation and ask the right questions.”

At the very least, make sure you’ve considered these 10 special circumstances.

10 Ways to Maximize Your Tax Refund

1. Stimulus payments and recovery rebate credits

In 2020, the government offered pandemic relief measures through the CARES Act (Coronavirus Aid, Relief and Economic Security Act), among others. Any stimulus payments you received through these packages are NOT taxable, so be sure not to lump them in with your income.

“If you didn’t receive the full stimulus amount,” Cecilia advised, “ask your accountant about a recovery rebate credit. It could reduce the total tax you owe, which means either a lower payment or a bigger refund.”

2. Income-based credits can be money in your pocket

Some tax credits are based on your income. The saver’s credit, for example, is a tax credit for your contributions to qualified retirement accounts. When your income is low, you can claim a higher percentage of those contributions. 

The costs of child and dependent care also come with tax credits, and the earned income credit can reach $6,660 for a family with at least 3 kids. Unfortunately, too many people fail to claim the credits they deserve.

“If you made less money in 2020 or drew unemployment, that low income can be worth a lot in tax credits. The earned income credit, for example, is refundable. In other words, you can get more money back than you paid in. Sometimes a lot more.”

There are rules about who can claim what, Cecilia added, but it’s worth the time to ask about your own situation. 

“The limits change based on your income as well as your filing status—married couples who file jointly often have a higher threshold—so be sure to check your specific limits.”

3. Claims for friends & relatives you’ve been supporting

If you’ve been helping a relative, or someone unrelated who lives with you, you might be able to claim that person as a non-child qualifying dependent. 

“There are limitations on the rule,” Cecilia said. “How much that person made last year, how much you’ve been helping them, and how long that non-relative has been living with you,” Cecilia said, “but the credit is worth up to $500 if you’re eligible to claim it.”

4. Claims for unrecoverable personal loans

You can claim a tax deduction for “non-business bad debt” if you loaned someone money and they can’t pay you back—but only if they can’t pay because of hardship, like unemployment or a foreclosure. And you have to be able to show that you tried to collect the debt. 

“If you can’t prove hardship or you didn’t try to collect the debt,” Cecilia advises, “keep good records and see where things stand next year. As a general rule, you have 7 years from the time the debt is officially ‘worthless’ to claim the deduction.”


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5. The CARES charity deduction


If you’re taking the standard deduction, the CARES Act lets you deduct $300 on top of that for certain charity donations. Those donations have to be made to tax-exempt organizations, and they have to be in cash. Things like food or clothing don’t qualify. 

The $300 limit also applies whether or not you’re filing jointly, but Ceclia doesn’t usually recommend the standard deduction.

“For some people, the standard deduction is the right choice, but it shouldn’t be an automatic decision. The better your records—the more you can really dig into your personal finances—the better off you are at tax time.”

6. Consider taking itemized deductions

Taxpayers can choose between a standard deduction or itemized deductions. The standard deduction is an “above-the-line” deduction, meaning it reduces your adjusted gross income. In other words, it will reduce your taxable income, so you pay less tax.

That sounds great, but it isn’t that simple. For many taxpayers, claiming the standard deduction will leave money on the table (even though the deduction increased slightly this year)—money that could have reduced those tax bills or increased those refunds by a substantial amount.

“Many people don’t claim itemized deductions because they don’t have their financial data organized,” Cecilia said, “but if they look through all the deductions they’re entitled to, one by one, it can be a huge savings when compared to the ‘easy’ route of standard deductions. In tax filing, easier isn’t always better.”

That’s especially true of charitable donations made in 2020. Charitable deductions used to be limited to 60% of your AGI (or adjusted gross income), but 2020 contributions can be deducted up to the full 100%. That can make a significant difference in large 2020 donations.

Deductions for IRA contributions have changed too, especially when it comes to age limits—which no longer exist. Those contributions used to be cut off at the age of 70 and ½, but that’s no longer true. Today, there’s no age limit for making regular contributions to either traditional or Roth IRAs. 

7. Self-employment comes with additional benefits

If you’re self-employed, you can claim a deduction for your home office as long as you’re using that space exclusively for work. For those who can take advantage of it, it’s worth running through the calculations to determine the amount.

Also, if you lost work time because you were sick, quarantined, or taking care of a sick family member, you can claim “qualified sick and family leave credits” thanks to the Families First Coronavirus Response Act.

“Working from home doesn’t mean you’re self-employed,” Cecilia cautioned. “But if you genuinely work for yourself, these deductions and credits can really help.”

8. CARES help for early retirement withdrawals

Given the economic pressures of the pandemic, many Americans were forced to withdraw money from their retirement accounts this year. Fortunately, the CARES Act offers help.

  1. Waive the early withdrawal penalty. IRAs, Roth IRAs, and 401(k)s all have penalties if you withdraw your money early. The CARES Act lets you waive that penalty if you were diagnosed with COVID-19 or if you can prove financial hardship because of the pandemic.
  2. Spread out the taxes. Even without the penalty, the taxes on your early withdrawal can be significant. The CARES Act lets you spread your tax payments out over the next 3 years if you want to.
  3. Pay it back early for more benefits. If you can pay the money back into your retirement account early, the CARES Act lets you do it without the usual contribution limitations. You can also unpay the taxes if you pay the withdrawal back soon enough.

“If you needed the money to get past a bad patch and then you can pay it back,” Cecilia told us, “the CARES Act helps you do that. If you pay taxes on the withdrawal for a year or two and then pay it all back in year three, tell your accountant. You can reclaim the taxes you paid by amending those returns.”

9. File early this year

Although the due date is back to April 15, the IRS recommends:

  • Filing early
  • Filing electronically
  • Using direct deposit

“File as soon as you can,” Cecilia told us. “The IRS is already accepting returns. The sooner you file, the sooner you’ll get that refund.”

10. Don’t fall victim to tax scams & identity theft

As a final note, be careful not to fall victim to identity theft. The IRS will never call you for money or to confirm personal information, and no one can exempt you from paying your taxes.

“If someone calls you claiming to be from the IRS, hang up. If you’re concerned by a phone message, call your accountant. Do NOT call a phone number someone left on your voicemail claiming to be an IRS agent.”

Using Quicken and Simplifi by Quicken to Maximize Your Refund

For some deductions and credits, you can get the records you need from an outside source, such as a 401(k) plan administrator. But itemized deductions, personal loans, childcare, and the like are things you need to track for yourself.

Quicken and Simplifi categorize your spending so you can take advantage of all your deductions and credits. Plus, they both let you store receipts electronically with your transactions, so you can prove those expenses if you ever need to. It’s as easy as snapping a photo.

“I’d strongly encourage people to organize their personal finance records, keep supporting documents easily available, and back everything up for safety,” Cecilia said. “Having complete data is invaluable when it comes to minimizing your tax liability and maximizing your refund.”

For more tax tips from the Quicken blog, visit https://www.quicken.com/blog/taxes.