14 Last-Minute Moves that Can Boost Your Tax Refund

Tax season 3
More than 60 million taxpayers have already filed their tax returns this year. Average refund so far: $3,021. Drew Angerer/Getty Images

More than three-quarters of the nearly 60 million taxpayers who have already filed their 2020 returns will be getting a refund this year, so far averaging just over $3,000, according to the IRS. While a check that big will certainly come in handy given the continued challenges of the pandemic economy, chances are, with a few smart steps, you can do even better—boosting the amount you get back from Uncle Sam by a few hundred dollars or more, or cutting the amount you owe if you're one of the unlucky group who'll end up with a tax bill instead of a refund.

While, most tax-saving strategies ended when the calendar year did on December 31, not all did. "Just because 2020 is over doesn't mean you're out of luck," says Birmingham, Michigan financial planner Nicole Gopoian Wirick. "There are still tax planning opportunities available right until the filing deadline on April 15."

Those moves include taking full advantage of pandemic-related breaks the government handed out last year, making eleventh-hour contributions to tax-advantaged retirement and healthcare savings accounts and grabbing some write-offs you may be newly eligible for because of the rocky economy.

With less than six weeks to go before returns are due, though, you don't have any time to waste. Here are 13 CPA- and financial planner-backed strategies that could pay off handsomely.

Grab All Your Stimulus Money

The size of the two stimulus checks sent out so far depended on your income and the number of dependents you had in 2019 or 2018. But the funds were technically an advance on a special tax credit for 2020. So if your income was drastically lower last year than in the previous two years or you've just had a child, you're likely owed more money.

If that's the case or you're still waiting on a missing stimulus payment, you'll need to complete an extra step on your tax return this year to get the money you're due. The effort will be well worth it, though, since doing so could increase your tax refund or lower your tax bill by several hundred dollars or more, says CPA and TurboTax tax expert Lisa Greene-Lewis.

To claim it, you simply need to fill in the missing sum on line 30 of your tax form 1040 or 1040-SR. (Figure out how much to enter by completing the Recovery Rebate Credit worksheet on page 58 of the 1040 instruction booklet.) Even if you're not normally required to file a tax return, you must complete this form to get that missing stimulus money.

If the IRS agrees that you're owed stimulus money, it will not be mailed or direct deposited into your bank account as previous payments were. Instead, the IRS will either add the amount to your refund or reduce the tax you owe by that sum.

Contribute to a Traditional IRA

Unlike other types of retirement savings accounts, traditional IRAs allow you to make contributions for the previous year right up until the tax-filing deadline. That means you have until April 15, 2021 to put money in this account to reduce your taxable income for 2020.

You can stash up to $6,000 in a traditional IRA, or $7,000 if you're 50 or older. Your contributions will reduce your taxable income dollar for dollar as long as neither you nor your spouse is covered by a retirement plan at work or your income falls below certain thresholds: $65,000 for single filers and $104,000 for married couples. Above those income levels, the tax break phases out and disappears completely once income exceeds $75,000 for singles and $124,000 for married couples.

If you qualify, the savings can be substantial. For instance, a single filer earning $50,000 last year who contributes the full $6,000 to an IRA would boost their refund or cut their tax bill by $720, according to TurboTax.

When you contribute, just be sure you specify that the money is earmarked for 2020, says Greene-Lewis. Don't have a traditional IRA? Not to worry, you can open an account in 2021 and still make contributions that count for 2020.

Save for Your Spouse's Retirement Too

If your wife or husband didn't earn any income last year—perhaps more likely than in years past as many left the workforce to care for children at home or ill older relatives hit harder by COVID—you can take advantage of an often overlooked tax-saving move: funding a spousal IRA, says New York City financial planner and CPA Robert Westley.

These accounts are set up under the spouse's own name and come with the same rules and contribution limits as a regular IRA. The only catch is that the total contributions made to each spouse's IRAs cannot exceed the compensation earned by the working partner. As long as the partner with income makes more than $12,000 ($14,000 if 50 or older), this shouldn't be an issue and you'll be able to sock away the $6,000 or $7,000 max in each account.

Tax season, dog image
A dogged approach to your taxes can yield an extra-large-sized refund. David Woo/Corbis via Getty Images

Put Money in a SEP, If You're Self-Employed

Small business owners and self-employed workers can save for retirement in a different kind of IRA, called a Simplified Employee Pension IRA or SEP, that offers higher contribution limits and more generous tax savings.

For the 2020 tax year, you can sock away up to $57,000 in a SEP or up to 25 percent of your compensation—nearly 10 times more than the max for a traditional IRA. Because of those higher contribution limits, the tax savings can be huge. When Irvine, California financial planner Henry Hoang helped a client establish a SEP IRA for his side hustle, it ended up saving the man close to $10,000 in income taxes between his federal and state returns.

The other benefit to using a SEP-IRA? You can delay 2020 contributions all the way until October 15 this year, rather than just till April 15 as with a traditional IRA. But you will need to complete a tax filing extension form in order to do so, says Westley. This can be a great tool, if you're waiting to fund the account until you see how much income tax you'll likely owe, he adds.

One caveat: If you employ other people in your business, the company must contribute the same amount to all workers' SEP IRAs. You can't elect, as the business owner, to reward yourself more.

Save More for Healthcare Costs

It's always wise to make sure you have a little extra money tucked away in case of an unexpected medical bill, but especially so during a pandemic. If you have insurance coverage through a high-deductible plan, you can save for future health expenses through a Health Savings Account (HSA) until April 15 of this year—and cut your tax bill at the same time.

Similar in structure to an IRA, contributions to an HSA reduce your taxable income dollar for dollar—you can stash away up to $3,550 away for 2020, if you had individual coverage, or double that, $7,100, if you had family coverage, up until the filing deadline (taxpayers 55 and older can kick in an extra $1,000). Save the maximum and you'll boost your refund or reduce the amount you owe by around $780 if you have an individual plan or about $1,560 if you have a family plan, assuming you're in the 22 percent tax bracket.

Other benefits to HSAs: You won't pay any taxes on money you withdraw to pay qualified medical expenses and gains on any investments in the account grow tax-free as well.

IRS
Three out of four taxpayers typically get a refund from the IRS every year and that pace has continued so far for the 2020 tax season. Zach Gibson/Getty Images

To open and fund an HSA, your health insurance last year had to have a minimum annual deductible of $1,400 for individual coverage or $2,800 for family coverage and a maximum annual deductible of $6,900 for individual coverage and $13,800 for family coverage. While contributions are commonly made through pre-tax payroll deductions if you get health coverage through work, you can put additional funds into an HSA anytime; the same is true if you bought a high-deductible plan via an ACA marketplace.

Contribute to a 529 College Savings Plan

Depending on where you live, you may be able to nab a deduction on your state income taxes for 2020 by kicking in some money for your child's education via a 529 savings plan.

Many states reward you with a tax break for 529 contributions but you typically need to make the contribution before the end of the calendar year to reap the reward for that tax year. There are a few states, however, that give residents until the filing deadline to deposit money into the account and have it count for the preceding year's tax: Georgia, Iowa, Mississippi, Oklahoma, South Carolina and Wisconsin.

Note that this deduction applies to state income tax only; the federal government does not offer a tax break for using a 529 plan.

Get Rewarded for Your Generosity

In a year when the need was greater than ever, more than half of all Americans, 55 percent, donated to a charity in 2020, according to an Invisibly survey. If you're among them, the CARES Act now allows you to deduct up to $300 in cash donations to a qualifying nonprofit on your 2020 return, even if you don't itemize.

That's big news because, since the passage of the Tax Cuts and Jobs Act in 2017, the only way to get a tax deduction for donating has been to forgo the standard deduction and itemize your return, something only 13 percent of Amercians actually do.

Donations must have been made by cash, check, or credit card to count. Contributions to a donor advised fund or drop-offs of physical goods won't work for claiming this deduction.

Take an Extra Credit

If you're planning to take advantage of the filing deadline to save in your IRA or were contributing to it or another retirement savings account throughout 2020, you may be eligible for the Saver's Credit. A tax credit reduces the amount of tax you owe directly, increasing your refund or cutting your tax bill dollar for dollar; that makes them more valuable than deductions, which instead reduce your taxable income.

The IRS rewards lower-income earners for saving for retirement by offering them a tax credit worth up to $1,000 for single filers and $2,000 for married joint filers. Depending on your income, the credit will be either 50 percent, 20 percent, 10 percent, or zero percent of the amount you contributed to an IRA, Roth IRA, 401(k), 403(b) or other retirement plan.

Credit RateMarried Joint FilersHead of Household FilersSingle Filers
50% of your contributionIncome not more than $39,000Income not more than $29,250Income not more than $19,500
20% of your contribution$39,001 - $42,500$29,251 - $31,875$19,501 - $21,250
10% of your contribution$42,501 - $65,000$31,876 - $48,750$21,251 - $32,500
0% of your contributionmore than $65,000more than $48,750more than $32,500

Maximize a Low-Income Year

If you suffered a layoff, furlough or drop in earnings last year as a result of the pandemic, you might be newly eligible for the Earned Income Tax Credit.

Only given to those with low incomes, this generous and refundable credit can knock up to $6,660 off your taxes, or, if you owe nothing, boast your refund by that much. But you must have received at least some compensation from an employer or self-employment work last year to qualify. Unemployment benefits, Social Security, and child support, for instance, do not count for claiming this credit, says TurboTax's Greene-Lewis.

How large the credit will be depends on your income and number of dependents.

Number of DependentsMaximum Income for Single or Head of Household FilersMaximum Income for Married Joint FilersMaximum Credit
Zero$15,820$21,710$538
One$41,756$47,646$3,584
Two$47,440$53,330$5,920
Three or More$50,594$56,844$6,660

Thanks to the Taxpayer Certainty and Disaster Tax Relief Act, you can use either your 2020 or 2019 income to calculate whether you qualify and get the biggest credit.

Get a Discount for Childcare Costs

If you paid for daycare, after-school programs or summer day camp for your child last year so you could work or look for work, you may be able to get a tax credit worth between 20 to 35 percent of such expenses. Though the IRS caps the total expenses you can use to calculate the credit at $3,000 for one child, or $6,000 for two or more children.

Anyone with childcare expenses for kids under age 13 or offspring who are not mentally or physically able to look after themselves can claim the Child and Dependent Care credit, regardless of income. But the tax break is worth more to lower-income families: Those making less than $15,000, for example, can take 35 percent of childcare costs whereas someone making more than $43,000 can only take 20 percent off.

Claim your Freelance Costs

Because of the pandemic, 12 percent of the U.S. workforce began freelancing for the first time last year, an Upwork survey found. If you were among them, know that starting your own business opens up a whole other world of possible tax breaks.

For instance, if you worked out of your home or use part of it for your freelance work, you can deduct a portion of the mortgage or rent, property taxes, utility costs and similar expenses.

But there are a couple catches to this. You typically must be self-employed to get it as the IRS doesn't allow those who are employees to take it. And the deduction is limited to the home's square footage that is used "exclusively and regularly" for business activities. So if your home office equals 10 percent of the home's space, then a tenth of your housing expenses for the year may be deductible. IRS Publication 587 provides more information and different scenarios to help you determine exactly what counts as exclusive use and, which expenses, can be deducted.

Alternatively, you can skip this and opt for the simplified version of the Home Office deduction. This option lets you deduct $5 per square foot of home used for the business, up to 300 square feet. You won't have to do as many calculations or keep as many records this way, but you could end up with a lower deduction.

Self-employed workers can also get a deduction on health and dental insurance premiums if they purchased the coverage for themselves or their family. One snag though, married joint filers can't have a spouse who is eligible to enroll in an employer's plan. See IRS Publication 535 for the full details.

Repay Hardship Withdrawals

To help relieve some of the pandemic-related financial strain people were dealing with in 2020, Congress passed the CARES Act, which, among other things, allowed those affected by COVID-19 to make withdrawals up to $100,000 from retirement savings accounts, such as a 401(k) or IRA, without incurring the 10 percent tax penalty typically charged if you're under age 59½.

The legislation did not, however, erase the income tax you still owe on any money removed from your retirement savings, though it did make the tax owed easier to repay by allowing the payment to be spread evenly over three tax years. So if you took $9,000 from your IRA last year, you could report $3,000 in additional income on your 2020, 2021, and 2022 tax forms rather than having to pay taxes on the full $9,000 in a single year.

But you can also avoid the income tax altogether if you repay the amount you withdrew. While you have three years to do this, waiting to repay it all in 2022 means you'll need to file amended tax returns for 2020 and 2021 to get the tax you already paid back into your account.

"If you took this hardship withdrawal and have some money available, think about paying it back now to reduce the tax that would be owed on those funds," says Westley.

Even if you can't afford to repay the full amount you took out, putting back even a fraction of it could be hugely helpful in reducing the taxes you'll owe, especially when you consider that this smaller sum can then be divided into thirds, saving you money in 2021 and 2022 too.

Pick the Best Filing Status

If you're not married, should you file as a single or a head of household? Picking the wrong filing status is a common but costly mistake, says Woburn, Massachusetts financial planner and CPA James Guarino, since the head of household designation offers more generous tax credits and deductions than filing as a single as well as higher income limits for claiming those breaks.

To be eligible for head of household status, you must have a child who is either under age 19 (or 24, if he or she is a full-time student) or disabled, or another dependent for whom you provided more than half of their support last year, typically a close relative such as a parent. Review the IRS's definition here to see if you qualify.

Carry Over Past Tax Breaks

Finally, you'll want to look over your most recent tax returns for any deductions or losses that you couldn't use fully before and that can be carried forward onto your 2020 return, says Guarino.

A common example of this is if you sold an investment for less than the price you paid for it. The IRS only allows up to $3,000 of losses to be used to reduce taxable income on a single year's return. So if you sold a stock in 2019 at a loss of, say, $5,000, you'd still have $2,000 worth of that loss to claim on your 2020 return.

"You can save just by refreshing yourself about prior years' returns," says Guarino. "Many people forget to look back, but there can be hidden jewels there."