For many Americans, tax season this year is particularly challenging with all the changes and new rules the pandemic has brought with it.
It can be a lot to keep track of when it comes to making sure you get all the tax breaks that apply to you.
One way to to do that is to make sure you’re using the best software available to maximize your refund.
Here are a few things to keep in mind that could mean a bigger refund:
Stimulus checks
Stimulus checks are at the top of most people’s mind right now, with the third round of payments set to arrive as early as the March 13-14 weekend.
The first stimulus payments — $1,200 for individuals and $2,400 for couples, plus $500 per qualifying child — went out last April. The second round, for up to $600 for single people and $1,200 for couples filing jointly, with $600 per child, started rolling out at the end of last year. However, many didn’t receive their checks until well into January or February.
If you believe you didn’t get the proper amount for your stimulus payments, your tax return is your chance to claim your stimulus money with the Recovery Rebate Credit.
You can calculate the credit you’re owed in your 2020 return, based on your income and family situation.
If you happened to get a larger stimulus payment than you qualified for, the good news is you don’t have to pay back the extra amount. Even better, any stimulus money you received isn’t taxable.
If your 2020 income was lower than it was in the previous two years, you could qualify for even more than the stimulus payments you’ve received so far. And if you’ve added dependents to your family in the last year, that extra per-child amount could apply to you, meaning you’re due an even larger credit.
You can also make sure you are getting the maximum refund by using a reliable tax software program.
Mortgage debt forgiveness
Part of the Trump administration’s COVID-19 stimulus bill that was signed into law at the end of last year is a change to taxable debt forgiveness that could mean more money in your pocket if you’re a homeowner.
Normally when debt is forgiven, for tax purposes, it’s taxable as a form of income, known as cancellation of debt (COD) income. But there’s an exception for COD income from cancelled mortgage debt that was used to purchase a primary residence.
Prior to the stimulus bill, up to $2 million in COD income cancelled between 2007 and 2020 was free from federal income tax.
Under the new laws, the break to cover forgiven mortgage debt for a principal residence has been extended to to 2025. (Though be aware, the amount treated as tax-free for those years has been reduced to $750,000.)
If you had mortgage debt forgiven during the pandemic, then this could save you some money on your return this year, and in the years to come.
If you didn’t have mortgage debt forgiven, you could free up some funds by refinancing your mortgage — which could save you hundreds of dollars a month.
Medical expenses
Another change that could get you more on your refund has to do with medical expenses.
In prior years, your medical expenses had to be more than 10% of your adjusted gross income to be deductible. But beginning this tax season, that percentage is down to 7.5%, meaning more expenses will be deductible.
In addition to this change, you’ll also be able to roll over any money you have in a health care or dependent care flexible spending account (FSA), including from 2021 to 2022. Under normal circumstances you’d have to spend it by the end of the calendar year or lose them.
When you’re looking to save some money, it’s always a good idea to revisit your current health insurance. Shop around and compare prices to make sure you get the best rate.
Child tax credit
The Child Tax Credit is intended to help working families by letting them claim as much as $2,000 per child under the age of 17.
The change this year is that you can use your 2019 earnings (rather than 2020) to determine your eligibility. So if your income took a hit this past year due to the pandemic, it won’t affect how this credit is calculated.
However, you should be aware that claiming the Child Tax Credit could potentially delay your refund, as it could prompt the IRS to ask you for more information.
If you want to protect your growing family amid the current uncertainty and beyond, make sure you have the right life insurance policy. You can compare policies to ensure you get the best price.
Earned Income Tax Credit
The Earned Income Tax Credit was designed with lower-income people in mind, and can lower the amount of taxable income paid on your wages.
If you earned less in 2020 than you did the year before, you might now qualify to receive the EITC, even if in previous years you didn’t.
The EITC can increase a family’s refund by more than $2,000 on average, but here’s the thing: you have to proactively add the credit to your return.
As part of the December COVID-19 relief package passed in Washington, you can use your 2019 earnings instead of your 2020 income to calculate this credit (and the more you made, the higher your credit will be).
Similar to the Child Tax Credit, though, claiming the EITC could slow your refund as the IRS will likely seek more information.
Small charitable deduction can be claimed by everyone
Normally the charitable deduction is only available to people who itemize their deductions, but as part of the pandemic relief bills passed by Congress, now anyone can claim small donations.
The deduction is only available for cash contributions, but you no longer have to itemize your deductions to claim it. There’s a limit of $300 to the deduction, but that’s $300 that wasn’t available to you previously.
You can also put that extra refund cash to work with a low-to-no commission investing app and watch your money grow.
