Picture this—it’s tax time, and you’ve just discovered a map leading to buried treasure. Instead of finding gold, you find the best ways to maximize your tax refund, giving you gold in abundance! We’re going to dive into the world of tax refunds like never before—it’s easier than you think to get more back during tax time!

The Basics: Tax Refunds 101

What exactly are tax refunds, anyway? A tax refund is money you get back for overpaying taxes to the federal or state government. Here are some reasons you may be eligible for a refund: 

  • You made an error filling out your W-4 Form, which is used to determine how much tax should be withheld from your paycheck1
  • You intentionally fill out your W-4 Form to withhold a higher amount of tax1
  • You forgot to update your W-4 for any change in circumstances, like if you had a child or got married1
  • If you are self-employed, you overpaid when paying your quarterly estimated taxes to avoid either having to pay a hefty bill at tax time or underpayment penalties1
  • You are eligible for refundable tax credits, which can take your owed balance below zero, meaning you would receive a refund1

Deductions & Credits

Deductions and credits can significantly reduce the taxes you owe to the government. Understanding the difference between them is essential for maximizing your tax benefits.

Tax Deductions

Tax deductions decrease your taxable income, which is “the portion of your annual income subject to federal and state taxes.”2 How much you receive for a deduction depends on your tax bracket. For example, if you fall into the 24% tax bracket, a $1,000 deduction would save you $240 in taxes. Deductions can be specific, like charitable donations or mortgage interest, or they can come as a standard deduction, which is a fixed amount set by the IRS and varies depending on your filing status.2

Tax Credits

These credits reduce your tax bill dollar-for-dollar, making them arguably more valuable than deductions. A tax credit valued at $1,000 directly reduces your tax bill by $1,000. Credits can be either refundable or nonrefundable:

  • Refundable credits can get you a refund if the credit amount exceeds the taxes you owe.
  • Nonrefundable credits can only reduce your bill to zero but not below, meaning you won’t get a refund based on these credits.

Popular credits include the Child and Dependent Care Tax Credit and the Earned Income Tax Credit (EITC), which helps low-and middle-income households​.3

Deductions and Credits You Might Be Missing

Here are some common—and missed!—deductions most people can claim on their taxes:

  1. Child Tax Credit: if you have children under the age of 17 and meet specific requirements, you could be eligible to receive up to $2,000 per child for your 2023 tax return, with $1,600 of that being potentially refundable!4
  2. Child & Dependent Care Credit: This credit covers a percentage of daycare costs for children under 13, a spouse, parent, or other dependent so you can work. “Generally, it’s up to 35% of $3,000 of expenses for one dependent or $6,000 for two or more dependents.”4
  3. American Opportunity Tax Credit: This lets you claim up to $2,000 spent on tuition, books, equipment, and school fees, and 25% of the next $2,000, which gives you a total of $2,500 to claim. Keep in mind that this credit doesn’t cover living expenses or transportation!4
  1. Lifetime Learning Credit: You can claim up to 20% of the first $10,000 used to pay for tuition and fees, totaling $2,000.4
  2. Student Loan Interest Deduction: You can write off up to $2,500 from your taxable income if you paid interest on your student loans during the year.4
     
  3. Adoption Credit: A nonrefundable tax break, this credit helps cover up to $15,950 of adoption costs per child. The credit decreases at certain income levels and goes away once your modified adjusted gross income (MAGI) reaches $279,230 or more.4
  4. Earned Income Tax Credit (EITC): This credit is for low-income earners with or without children. “The credit ranges from $600 to $7,430, depending on how many kids you have, your marital status, and how much you made.”4 
  1. Charitable Donation Deduction: If you made any charitable donations, “you can generally deduct up to 60% of your adjusted gross income.”4
  2. Medical Expenses Deduction: If you paid for any medical expenses out of pocket, you can claim up to 7.5% of your adjusted annual gross income.4
  3. Deduction for State & Local Taxes: For a combination of either state or local income tax, property taxes, or sales tax through a tax break. You can deduct $10,000 or $5,000 if married and filing separately.4 
  1. Mortgage Interest Deduction: This deduction helps make owning a home more affordable! You get to claim the mortgage interest you paid throughout the year.4 
  1. Gambling Loss Deduction: If you earn gambling income, it’s taxable the same as your paycheck. But you can also claim the amount you spent on that gambling income. Say you spent $100 on tickets and won $1,000—you can claim that $100 as a deduction, but you must also claim the $1,000 as income. You also can’t write off more than you win.4
  2. IRA Contributions Deductions: You may be able to deduct IRA contributions from your taxes, but it depends on how much you earn and whether you’re part of your job’s retirement plan.4  
  3. 401(k) Contributions Deductions: If you take income directly from your paycheck and put it into a traditional 401(k), the IRS doesn’t tax this income. In 2023, the maximum contribution limit was $22,500 ($30,000 if 50 years or older). That limit raised $500 for 2024.4
  4. Saver’s Credit: Also known as the retirement savings contribution credit, this is for mid-and-low-income earners who put income into a retirement account. This credit is worth $1,000 if filing individually or $2,000 if married and filing together.4
  5. Health Savings Account Contributions Deduction: Any money you contribute to your health savings account is tax-deductible. If you use the withdrawals for medical expenses, they are tax-free, too!4
     
  6. Self-Employment Expenses Deductions: If you’re self-employed, see the next section for some sweet deductions only entrepreneurs can use!
  7. Educator Expenses Deduction: You can claim up to $300 for classroom expenses if you’re a school teacher or other educator.4
  8. Solar Tax Credit: Also known as the “residential clean energy credit,” this credit helps out when installing solar energy systems—like solar water heaters and solar panels—and you can recoup up to 30% of the installation costs.4
  9. Energy Efficient Home Improvement Tax Credit: if you buy energy-efficient windows, doors, or heat pumps, you can get up to $3,200 back on those investments.4
  10. Electric Vehicle Tax Credit: You can get anywhere from $3,750 to $7,500 back if you bought an electric vehicle in 2023. You can even get up to $4,000 back if you buy a used electric vehicle. Eligibility depends on income, the price of the vehicle, and if the vehicle “meets IRS manufacturing guidelines for qualified EVs.”4 

Self-Employed Deductions

If you are self-employed, there are things you can deduct that others with traditional jobs can’t! Let’s check out some of the extra perks the self-employed get:

  1. Home Office Deduction: If you’re self-employed, working from home, or using part of your home for your business, there are certain expenses you can deduct. These include some of your mortgage or rent, property taxes, utilities, repairs, maintenance, and other similar costs. You just have to figure out the percentage of your home you use for business, and you’re good to go! “If your home office takes up 10% of your house’s square footage, 10% of those housing expenses for the year may be deductible.”5
  2. Health Insurance Deduction: You may be able to claim the premiums you pay for health insurance for you and your family. Anything after 7.5% of your adjusted gross income is deductible.5
  3. Continuing Education Deduction: Nurturing and growing your business takes brains, and you must keep your mind sharp. The IRS helps you out by giving you deductions for just that! These expenses are deductible only if they maintain or improve “skills needed in your present work.” So if you’re considering switching careers, it doesn’t cover that. It only works to improve your current business and skill set. This deduction can cover travel costs, tuition, books, and more.5
  4. Mileage Deduction: If you drive to meet clients, go to clients’ homes to complete work, or meet clients for dinner, you can claim the mileage deduction. To calculate it, keep track of the yearly mileage used for business purposes, multiply that number by the IRS standard mileage rate, and deduct the total. In 2023, the standard mileage rate was 65.5 cents per mile, rising to 67 cents per mile in 2024.

    Instead of deducting your mileage, you can deduct your actual car expenses, like “depreciation, licenses, gas, oil, tolls, parking fees, garage rent, insurance, lease payments, registration fees, repairs, and tires.” You may have to take this route if you use five or more cars for your business.5 
  1. Retirement Savings Deduction: A popular choice for self-employed retirement is a solo 401(k). You can contribute up to $66,000 in 2023 and $69,000 for 2024.5
  2. Self-Employment Taxes as Self-Employment Tax Deductions: The self employment tax rate is 15.3% of your net earnings. You can deduct half of this from your income taxes.5
  3. Business Insurance Premium Deduction: You may be able to deduct some or all of the premiums you pay for business insurance and employee accident and health insurance.5
  4. Office Supplies Deduction: For smaller items like pens, staplers, paper, and similar items, you can use the office supplies deduction. For larger items like computers or desk chairs that may depreciate over time, “you can deduct them in the year you buy them if their useful lives are a year or less.” If their useful lives are over a year, the IRS views these as items that depreciate over time. You can still claim the depreciation costs over the item’s useful life.5
  5. Credit Card and Loan Interest Deduction: You can deduct the interest accrued on your credit card from business expenses.5
  6. Phone and Internet Costs Deduction: You can deduct the entire bill from your income tax if you have a dedicated business phone or internet line. If you use a personal phone or internet line for business purposes, you can only deduct the percentage used for business.5
  7. Business Travel and Meals Reduction: You can claim the cost of flights, hotels, taxis, food, gas, and more if used for actual business expenses. You can only claim 50% of the cost of food, and you can’t claim anything for your spouse or children unless they are your employees. You can use a standard daily meal allowance if you don’t want to figure out the actual amount. The U.S. General Service Administration decides the standard daily meal allowance.5
  8. Start-Up Costs Deduction: You may be able to claim your business start-up cost on your income tax. This can include expenses for getting your business up and running, employee training, grand opening advertising, and more. You can generally claim up to $5,000 for start-up expenses and $5,000 for organizational costs (like setting up an LLC). Your $5,000 deduction is reduced after your start-up costs exceed $50,000.5
  9. Advertising Deduction: You can even get a tax break by getting your business name out there! You can deduct any advertising expenses directly tied to your business.5
  1. Membership Deduction: This deduction only counts for professional organizations. You can’t deduct memberships to clubs (like country clubs or travel clubs), but you can generally deduct membership fees for organizations like:
    -boards of trade
    -business leagues
    -chambers of commerce
    -civic or public service organizations
    -medical or bar associations
    -real estate boards
    -trade associations5
  2. The Qualified Business Income Deduction: If you’re self-employed or own a small business, you could slash your taxable income by 20%—perfect for those earning up to $182,100 solo or $364,200 jointly in 2023. This tax break applies to pass-through entities like sole proprietorships, partnerships, S corporations, and LLCs. You might still snag a deduction depending on your business type, even if you’re over the limit.5

Tax Breaks for All!

Whether you work a traditional job or are self-employed, there are hidden tax breaks for everyone! Exploring these deductions and credits can significantly reduce your tax bill, turning a routine filing into an opportunity for substantial savings. While we highly recommend seeking professional advice to navigate the complex landscape of tax regulations effectively, we hope this guide sparks your enthusiasm for uncovering potential tax savings. 

Remember, every dollar you save on taxes is more for you to invest, spend, or save as you see fit. Start your tax-slashing journey today and see how much you can reclaim—it might be the financial boost you need this year!

Resources

1https://www.investopedia.com/terms/t/tax-refund.asp

2https://blog.taxact.com/deductions-vs-credits-how-do-they-affect-my-refund/

3https://www.nerdwallet.com/article/taxes/tax-credit-vs-tax-deduction

4https://www.nerdwallet.com/article/taxes/tax-deductions-tax-breaks

5https://www.nerdwallet.com/article/taxes/self-employment-tax-deductions