How can I increase my tax refund?
It’s a question I receive often this time each year.
While there aren’t many chances to change your tax situation into the next year…there are still two big things we can for do up until May 17, 2021 (for 2020):
#1 – Contribute to an IRA
Anyone with earned income, and also spouses without any, can contribute up to $6,000 ($7,000 if age 50 and up) into an Individual Retirement Account (“IRA”). This may be deductible depending on the extent to which you contributed to a retirement savings plan at work.
For the self-employed, also look into making a deductible contribution of up to 20% of your business income into a SEP-IRA.
Visit Vanguard to open an IRA today.
#2 – Contribute to an HSA
For those with a qualified high-deductible health care plan, you are eligible to contribute up to $3,550 ($7,100 for family) into a Health Savings Account (“HSA”) for 2020.
See here for more about HSAs.
We have until our tax filing deadline of April 15th to make these contributions. For the IRAs, this is because the amount you can contribute and whether it is deductible is dependent on the results from your tax return.
Deductible contributions will reduce your 2020 taxable income and your tax liability…thereby increasing your refund (or decreasing your amount owed). Yeehaw!
To be fair (or in Letterkenny: “to be faaaaaair…”) this won’t put more cash money directly into your pocket immediately since you’re stashing some of it away for later. But you are putting money into your future self’s pocket. Let there be no mistake: this is tax money you are keeping for yourself.
While you may pay taxes when you pull it out later (depending on your situation at that time), you’ll get the benefit of that tax money working for you between now and then. And a HUGE benefit that is.
You have worked hard for your money and deserve to keep some more of it.
Last call! Pay yourself by May 17th and increase your tax refund.
Do it! You deserve this.
For more information on tax-advantaged savings strategies, visit: buckthebudget.com.