UPDATE: The Treasury recently announced tax changes and updates in response to COVID-19, updates include an extension of the first installment of the tax year 2020 quarterly estimated taxes to July 15, 2020. Some information in this post, however, requires additional IRS guidance and may require updating. We will update as soon as we receive additional guidance. Please see the latest information on tax deadlines and updates related to COVID-19 here.
Retirement Contributions Lead to Bigger Tax Refunds
Favorable tax provisions for retirement planning make investing in your nest egg one of the best ways to boost your tax refund. The IRS even allows you to benefit twice when it comes to a traditional individual retirement account or IRA. This unique opportunity allows you to both deduct up to a certain limit and get a refundable credit if you earned less than a certain amount of money.
Here's how to take advantage of the same retirement contribution twice to maximize your tax refund:
- Take the deduction for a traditional IRA, which is limited to $6,000 as of the tax year 2019 (or $7,000 for filers ages 50 and up).
- You can then get an additional credit of up to $1,000, or $2,000 if filing jointly when you contribute to an IRA or certain other qualified plans. This tax benefit is known as the Saver's Credit, also called the Retirement Savings Contribution Credit.
If you are eligible, you can open a traditional IRA and claim the credit for the previous year up until the upcoming tax deadline, which falls on July 15.
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Roth IRAs work a bit differently when it comes to boosting your tax refund. You can't deduct Roth IRA contributions, but they do qualify for the Saver's Tax Credit.
Other retirement plans that qualify for the credit include:
Tax credits boost your refund more so than deductions, but they aren't available to filers at all income levels. They tend to favor taxpayers with low and moderate incomes.
To take advantage of the Saver's Credit for the tax year 2019:
- Single taxpayers can earn no more than $32,000
- Heads of the household can earn no more than $48,000
- Married taxpayers who filed jointly can earn no more than $64,000
By answering a few simple questions when filing your tax return with TurboTax, you'll receive recommendations for credits and deductions that are specific to your income and situation, boosting your tax refund.
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Get Some Credit for Being Energy Efficient
Energy-saving improvements to your home pay off in a couple of ways: You save money over time through low or no energy bills and you get to take advantage of tax credits.
- For example, through the Residential Energy Efficient Property Credit, you can invest in an alternative energy system and claim 30% of the cost of the system through 2019.
- After that, you can still claim a reduced percentage of the cost through 2021 for solar electric and solar water systems. The credit applies only to your primary residence and second home, not to rental or investment real estate.
Improvements that the credit covers include qualified:
- solar electric systems
- solar water heaters
- small wind energy turbines
- fuel cell property (through 2016 only)
The Nonbusiness Energy Property Credit ended on December 31, 2016. Although it didn't offer as much as the Residential Energy Efficient Property Credit, the qualifying improvements were more basic and affordable.
The credit was limited to $500 over your lifetime, and you could claim up to 10% of the cost of doors and windows (not including installation costs). Your windows and doors had to have a manufacturer's certification statement to qualify for the credit.
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