For many Americans, an income tax refund is a windfall - a chunk of money that can be used for many different purposes. But the amount of this refund is determined by the numbers that are generated from the previous year. Therefore, the fourth quarter of the year is the time to start thinking about what can be done to maximize the amount that you can get back when you file your return in the spring. Here are some of the more common strategies that you can implement as the year ends. (For related reading, take a look at States That Pay The Most Taxes.)
IN PICTURES: 9 Ways To Use A Tax Refund

Charitable Donations
Filers who are on the edge of being able to itemize their deductions for the year should consider making a donation of either cash or property to a qualified charity before the year is out. This can be especially beneficial if the filer has a piece of property of some value that he or she wishes to dispose of, such as an extra car or recreational vehicle. These can provide a substantial deduction that can increase your refund by hundreds (or even thousands) of dollars. (For additional information, see Why You Should Itemize Even If You Don't Qualify.)

Retirement Plan Contributions
Those who need to reduce their taxable income for the year should make the maximum allowable contributions to their traditional, deductible retirement plans. In some cases, such as small business owners and those who make the maximum allowable lump-sum contribution to their plans for the year, this deduction can be fairly large.

Although contributing to Roth accounts may be the best way to go for some, traditional plan contributions afford a current deduction that can make a huge difference in the amount of declarable income for many filers. Even low-income taxpayers can claim the retirement savers' credit for small contributions to their IRAs or employer-sponsored qualified plans.

Education Expenses
Parents who pay tuition for their kids' higher education are usually eligible for education tax credits of some sort. Those who must deplete their savings for this reason should take care to record the amounts paid for their tax records. The credits for these expenses can reduce a parent's tax bill by thousands of dollars, depending upon the circumstances.

As rudimentary as this may sound, good record keeping is essential to maximizing your tax deductions. Make sure that you record every charitable contribution, every above-the-line deduction and anything else that can increase your income tax refund for the year. Keep copies of all receipts and other documentation that proves your transactions, as the IRS now requires this in order to accept these deductions on every return. Those who fail to do so invite a negative adjustment to their tax returns if they should become subject to an audit.

Miscellaneous Deductions
Many taxpayers may be surprised when they discover that certain kinds of expenses or losses can be deducted on their tax returns. Gambling losses are deductible, though only on par with winnings, and investment expenses (such as IRA custodial fees and margin interest) are only deductible if they exceed a certain percentage of your adjusted gross income (AGI).

IN PICTURES: 5 Tax(ing) Retirement Mistakes

Capital Losses
This could be a good time to cut your losses in the market, if you are a short-term investor. Swap out losing stocks or bonds for similar holdings that offer potential gains and realize the losses on your return. These can provide a maximum reduction of $3,000 of your reportable income, or reduce your reported income by more, if you have large reportable gains that you can write your losses against this year. And reduced income can translate into a larger refund, in most cases. (For related reading, check out 7 Year-End Tax Planning Strategies.)

The Bottom Line
These are just some of the ways that taxpayers can increase their tax refunds. But remember that your refund is just that; it's the return of excess money that you have withheld from your paycheck throughout the year.

For the latest financial news, see Water Cooler Finance: The Beginning Of A Foreclosure Crisis?

Related Articles
  1. Taxes

    How & Where to File Form 1040 (And Which Version)

    All taxpayers need to know three things when filing a 1040: which form to use, how to file and where to file. After reading this, you'll know all three.
  2. Savings

    Should You Look at 529 Plans Outside Your State?

    529 savings plans are not restricted by geography. So if your in-state offering has high fees or poor investment choices, look elsewhere.
  3. Taxes

    The Purpose Of The W-9 Form

    The W-9 form provides key data your clients need if you're an independent contractor. Just be sure you're not really an employee who should fill out a W-4.
  4. Retirement

    Pros and Cons of Deferred Compensation Plans

    Learn about the pros and cons of non-qualified deferred compensation (NQDC) plans, including the flexibility of non-ERISA plans and the potential for forfeiture.
  5. Taxes

    5 States Without Sales Tax

    Learn about the five states that do not charge sales taxes and about other taxes the states levy instead in order to generate revenue.
  6. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  7. Taxes

    10 Money-Saving Year-End Tax Tips

    Getting organized well before the deadline will curb your frustration and your tax liability.
  8. Taxes

    2016 Tax Code Changes Add Some Wiggle Room

    It's never too early to prepare for tax season. Next year features a host of tax law changes. Check our handy list to see which ones apply to you.
  9. Taxes

    End-of-the-Year Checklist to Save on Income Taxes

    From grouping related expenses to factoring in the alternative minimum tax, here are some things you need to keep in mind when doing tax planning.
  10. Insurance

    Avoid the Obamacare No-Insurance Penalty by Jan. 31

    If you don't have health insurance, act NOW or you could owe penalties on your 2016 taxes, in addition to this year's.
  1. Do tax brackets include Social Security?

    A portion of your Social Security benefits may be subject to federal taxation using tax brackets. Your tax bracket is determined ... Read Full Answer >>
  2. Is dental insurance tax deductible?

    Dental insurance premiums may be tax deductible. To be deductible as a qualifying medical expense, the dental insurance must ... Read Full Answer >>
  3. Are personal loans tax deductible?

    Interest paid on personal loans is not tax deductible. If you take out a loan to buy a car for personal use or to cover other ... Read Full Answer >>
  4. Are Flexible Spending Account (FSA) contributions tax deductible?

    The contributions you make to your Flexible Spending Account (FSA) are not tax-deductible because the accounts are funded ... Read Full Answer >>
  5. Do Flexible Spending Accounts (FSAs) expire?

    Flexible Spending Accounts (FSAs) do expire and are considered to be a "use it or lose it" type of plan. They are savings ... Read Full Answer >>
  6. Do 401k contributions reduce AGI and/or MAGI?

    Traditional 401(k) contributions effectively reduce both adjusted gross income (AGI) and modified adjusted gross income (MAGI). ... Read Full Answer >>

You May Also Like

Trading Center