No matter what 2020 looked like for you, there are many ways you can get more back from Uncle Sam this tax filing season.
Check out these tax tips designed to help millennials, like you, get your biggest refund.
Earned Income Tax Credit.
The Earned Income Tax Credit (EITC) may be your biggest tax break yet.
If you have no qualifying children, you must earn a relatively low income to be eligible for the EITC. For tax year 2020, for example, you must have earned less than $15,980 to meet the requirements for the credit ($21,920 married filing jointly) if you have no qualifying children.
However, if you have just one qualifying child and make $42,158 or less ($48,108 married filing jointly), you might be surprised to find you qualify for the EITC.
Additionally, your credit can be far greater than the amount you paid in estimated taxes or had withheld from your pay because the EITC is a refundable credit.
Any unused credit dollar amount after any taxes you owe are paid down goes into your pocket as a refund.
The maximum EITC for 2020 is $529 if you have no children living with you, $3,526 if you have one child, $5,828 if you have two children and $6,557 if you have three or more children living with you.
Do you have children living with you? They can help you get a bigger refund.
Most people know they can take a dependency exemption for their kids. However, that’s not the only way your kids can help you save at tax time.
You may also qualify to take the Child Tax Credit for up to $2,000 per child under age 17 at the end of the year.
The credit begins to phase out when your income exceeds $75,000 ($150,000 if filing jointly). For taxpayers in lower income brackets, this credit may be refundable.
Having children can make a big difference in whether you qualify for the EITC and how much credit you receive.
A child must live with you to count for the EITC, which means if the child’s other parent takes the dependency credit for your child, but the child lives with you, you can still claim the child for purposes of the EITC.
You may also qualify to claim the Adoption Credit if you adopted a child or paid adoption expenses during the year.
Plus, if you paid childcare and babysitting expenses, you may be able to take advantage of the Child and Dependent Care Credit.
If you’re still attending college or going back to school, education credits can boost your tax refund substantially. There are currently two education credits – the American Opportunity Tax Credit and the Lifetime Learning Credit.
The American Opportunity Credit applies to your first four years of college. It’s a great deal — you get 100 percent of your first $2,000 in tuition and other expenses back as a credit and 25 percent of the next $2,000. This comes to a total of up to $2,500.
You should use the Lifetime Learning Credit if you don’t qualify for the American Opportunity Credit.
For example, this would be a good option if you have already completed more than four years of college or you are taking a few evening classes after work.
In this case, you may qualify for a tax credit of 20 percent of up to $10,000 in education expenses, which equals a maximum credit of up to $2,000.
Use the best filing status for your situation.
The filing status you choose for your tax return may seem obvious, but that’s not always the case. The most common filing status mistake people make is to assume if they are single, they should always use the Single filing status. That’s not always the best choice.
If you support another person and maintain a household you may meet the qualifications to file as Head of Household – which could be a more advantageous filing status. You may even qualify to file as Head of Household if you are married but “considered unmarried” because your spouse didn’t live with you the last six months of the year.
If you are married, your best tax bet may be to file as Married Filing Jointly. Some tax benefits are limited or not allowed if you use the Married Filing Separately status.
However, there are always exceptions. For example, if combining your incomes makes the amount you jointly earn too high to take advantage of various miscellaneous deductions, such as union dues or non-reimbursed business expenses, you may want to consider filing separate returns.
Plan for next year.
Tax planning doesn’t have to be complicated or involve expensive accountants and unusual tax strategies. Sometimes simple changes can make a big difference at tax time.
For example, you generally receive education tax credits and deductions based on the year you paid the expenses.
It’s usually best to pay deductible expenses in the earliest year possible to get the tax benefit sooner. But, in some cases you may be better off spreading education costs across two or more years to qualify for the maximum education tax credits.
Another example would be to determine whether your parents should claim you as a dependent. If you are a student under 24 years of age and your parents pay at least half your expenses, it could easily go either way.
If your parents are in a much higher tax bracket, they’ll typically gain a much greater benefit from the dependency exemption than you would.
You may want to put a little more of your money into savings, so they can take the exemption.