5 smart ways to increase your tax refund

With the tax filing deadline coming up on April 18, 2023, you might be looking for ways to reduce your tax liability. However, recent tax changes, including the expiration of several pandemic-related tax benefits, may mean that some people will get smaller refunds this year.

But that doesn't mean you can't find ways to increase your tax refund. With strategic planning and a thorough tax filing approach, you can maximize tax-saving opportunities and potentially receive money back from the government. You can get your taxes done right - and receive a maximum refund - by filing with TurboTax now. 

5 smart ways to increase your tax refund

In particular, consider steps such as the following:

Choose the best filing status

The first step to increasing your tax refund is to choose the best filing status. That can be one of five options:

• Single
• Married filing jointly
• Married filing separately
• Head of household
• Qualifying widow(er) with dependent child

You might not always have the ability to change your filing status, such as if you only qualify as a single filer. But perhaps you didn't realize you qualify as head of household, for instance, in which case you can take advantage of a larger standard deduction, among other tax benefits.

Or, you might find that you can reduce your taxable income using higher limits for married filing jointly, for example, compared with married filing separately.

That said, some filers find that filing taxes separately from their spouse makes them eligible for more tax deductions, such as if one spouse has high medical expenses one year and can itemize deductions. See what makes sense for your situation.

You can file your taxes in less than 15 minutes online right now.

Itemize deductions where possible

If you're able to itemize deductions, you can reduce your tax liability more than if you took the standard deduction. While you don't want to incur expenses unnecessarily just to itemize, perhaps you have more opportunities to deduct expenses than you realized.

For example, you can deduct interest that you pay on a mortgage (for the first $750,000 of indebtedness if married filing jointly). So, if you recently bought a home, you might be able to start itemizing your taxes.

Another common itemized deduction is charitable contributions. If you don't have enough expenses to itemize, one tip from Amy Hamasaki, owner and lead planner at Mountain Wealth Planning, is to batch them.

"Rather than making small yearly donations, make a larger one every few years," she says.

Take advantage of new tax credits

Even if you don't itemize your taxes, you should still look to take tax credits when applicable. Doing so can reduce your tax liability on a one-to-one basis, e.g., if you owe $3,000 in taxes but then claim a $1,000 tax credit, you would only owe $2,000.

Note that many tax credits are not refundable. That means if your tax credit reduces your tax liability below zero, you wouldn't receive a tax refund if the credits are nonrefundable, but you could at least avoid tax debt in this scenario.

Tax credits often change, so see if there are any new ones you qualify for. Or, you might want to start planning now for tax credits to take the next filing season. For example, for tax year 2023 (meaning this would affect next year's tax filing season), taxpayers can take advantage of more environment-related credits from the Inflation Reduction Act.

Loreen Gilbert, CEO and founder of WealthWise Financial Services, points to new or extended tax credits for things like buying an electric car, installing an electric heat pump, or adding solar panels to your home.

"These new tax credits are around for eight to ten years, so people have time to plan ahead," she says. "Make sure before purchasing any items that you double check the tax credit and that you will qualify for it."

Leverage healthcare savings accounts 

To save for healthcare expenses while also saving on income taxes, both Gilbert and Hamasaki suggest contributing to a health savings account (HSA).

With an HSA, if you have a high-deductible health insurance plan based on the IRS requirements for the given tax year (e.g., a minimum deductible of $1,500 and a maximum annual deductible and other out-of-pocket expenses of $7,500 for self-only coverage for 2023), then you can make pre-tax contributions, thereby reducing your taxable income.

Then, that money can grow tax-free, and you can withdraw it tax-free too when using the funds for eligible healthcare expenses.

Similarly, if your workplace offers a flexible spending account (FSA), you could set pre-tax money aside each year to pay for eligible healthcare expenses. However, FSA funds have limited year-to-year rollover capabilities.

But with careful planning, you can reduce your taxable income with these types of accounts, which could ultimately increase your tax refund.

Maximize retirement contributions

Another way to increase your tax refund while saving money long-term is to maximize retirement contributions. By putting money into an account such as a 401(k) or individual retirement account (IRA) you can reduce your taxable income while growing your retirement portfolio.

The more you can save in the accounts you're eligible for, up to the relevant maximums (e.g., $22,500 for 401(k)s for tax year 2023), the more you can save on taxes.

Note that the actual savings depend on your tax rate, as these contributions typically count as deductions, not tax credits. However, if you're below certain income thresholds to qualify for the Retirement Savings Contributions Credit, you can receive a partial tax credit.

You can maximize your refund when you file online with TaxSlayer or use the table below to start exploring some online tax preparation services that can help you now.

The bottom line

While these are some of the best ways to reduce your tax liability and perhaps increase your tax refund, keep in mind that there are many other ways to boost your tax return this year and in the years to come.

That said, you don't necessarily want to become overly fixated on tax credits, tax deductions, and increasing your tax refund.

"Don't let the tax tail wag the dog, meaning just because you are able to reduce your tax bill in a specific year, it could come as a detriment to your net worth over time," says Hamasaki. 

For example, buying something you can barely afford just to qualify for a tax break might not always be a smart financial decision.

You also might want to aim for no tax refund at all, "as this is essentially an interest-free loan to the U.S. Treasury," says Hamasaki. Instead, she says, try to figure out what your tax liability will be and make adjustments to your withholdings, such as via your W4, so you pay the right amount along the way.

That said, as you're going through your tax filing or preparing for next year's tax return if you can find reasonable ways to save on taxes while also helping yourself in other areas, like saving on healthcare costs via an HSA, then that could be worth looking into. Consider speaking with an accountant or another qualified tax prep professional to see what you can do to optimize your tax return.