Tax Tips – How to Maximize Your Refund in 2025

Tax season is officially open for business! As of January 27th, the IRS will now begin accepting and processing individual returns. 

Though you can probably think of more exciting things to do with your time than navigating Form 1040, there could be some potential financial benefit. According to some tax experts, many Americans leave as much as $2,500 to $5,000 on the table because they might not be aware of certain tax credits or deductions and how to take them.

Nothing beats getting to the end of the tax filing process and finding out that you’re going to get money back. Therefore, let’s maximize that refund by making sure you pay attention to the following.

Get Your Documents Together

Whether you do your taxes yourself or pay someone else to prepare them, it will be nearly impossible to do so accurately if there isn’t good data to work from. Hence, put yourself on good financial footing by making sure all of the proper documents are ready to go.

If you’re digitally savvy, this can be as simple as making a secure folder on your laptop where you can save W-2s, 1099s, and other financial statements. If you’re a little more old school, then save all of these paper copies in a special folder specifically designated for tax documents. The earlier you make this process a habit, the better off you’ll be.

Though it’s not as common, if you’ve already made any ES (estimated) tax prepayments, have those receipts handy as well. Being able to demonstrate that you’ve already paid some or all of your taxes ahead of time will go a long way towards helping you get a greater refund.

Contribute to a Deductible IRA

A trick that wealthy people often use to reduce their tax bill is to make their taxable income as small as possible. This can be done (legally) by taking as many deductions as you qualify to utilize.

One of these are contributions to a traditional IRA. As long as your income is below a certain threshold (dependent on your tax filing status), then you might qualify to make deductible contributions.

If you didn’t contribute to one in 2024, then you technically have until tax day (April 15th, 2025) to fund it. The annual maximum allowed is:

• $7,000 if you’re under age 50
• $8,000 if you’re 50 or older. 

Note that contributions to a Roth IRA are not tax deductible, meaning they will not offset this year’s taxable income. However, there can be many long-term advantages to contributing to a Roth-style plan. Hence, be sure to give some thought as to how each type of IRA may fit within your overall retirement plan.

Maximize Your HSA

Another common deduction against your taxable income are contributions to an HSA (health savings account). HSA’s are essentially investment accounts that allow you to set aside and grow money that you can later use to reimburse yourself for medical related expenses. They’re typically only available to employees who have eligible healthcare plans with high deductibles.

Similar to an IRA, you have until April 15th to maximize your 2024 contributions. These would be:

• $4,150 if your plan covers only you
• $8,300 if you have coverage for your family

HSAs are an interesting financial tool because they’re essentially a triple threat. Not only are they tax-deductible in the year that you make contributions, but they also grow tax free and are eligible for withdrawal tax-free as long as they’re used for medical expenses.

Take the Child Tax Credit

Do you have children? If so, don’t forget to claim the child tax credit.

For 2024 tax returns, this credit is up to $2,000 per qualifying child. To use the credit, a child must:

• Have a Social Security number
• Be under age 17 at the end of 2024
• Be claimed as a dependent on your tax return

In general, tax credits are usually a better deal than deductions because of the way they work. Whereas a deduction reduces your taxable income, credits get subtracted from the tax you owe making them essentially a one-for-one reduction.

See If You Qualify for the Earned Income Tax Credit

Another very popular type of tax credit is the earned income tax credit (EITC). This one is generally helpful for people with below average income. To see if you qualify, check the requirements posted by the IRS.

Note that the EITC is a refundable tax credit. That means if you owe the IRS less than what the tax credit is worth, you’ll get refunded the difference.

Start a Retirement Plan for Your Side Hustle

Did you do any work this year to make some extra cash? According to the IRS, technically any earnings above $600 should be reported as self-employment income and will add to your tax bill. This is true even if you hold a regular full-time job.

However, reporting self employment income also makes you eligible to start and contribute to one of three types of self-employed retirement plans:

• SEP IRA
• Solo 401(k)
• SIMPLE IRA

Of the three, a lot of people opt for the SEP IRA because it’s one of the easiest and most flexible to use. This retirement account lets you make contributions from two perspectives: the employer and the employee.

As an employee, you can pretty much treat it like a regular IRA. However, if you’ve already made a total of $7,000 in contributions to another type of IRA (traditional or Roth), then you unfortunately can’t add any more funds.

As an employer, you also have the opportunity to make a much larger contribution – the lesser of:

• 25% of the employee’s compensation, or
• $69,000 for 2024

Truthfully, any amount you can save is helpful because it will reduce your taxable income and the taxes owed accordingly.

College Savings Contributions

Saving for college for your children using a 529 plan won’t lower your federal income taxes the way that retirement contributions will. However, it may help reduce what’s owed to your state’s treasury.

Most states will count your contributions as a tax deduction against your income as long as you’re using your home state’s 529 plan. However, a few states count contributions to any 529 plan. The actual amount and reduction to your taxes will vary from state to state.

The Bottom Line

As a taxpayer, you’re entitled to get every dollar back that the government owes you. So be sure to use as many advantages as possible when filing your 2024 returns. Not only will it help your budget, but it will make you more aware of how the tax system as a whole works and what you can do to minimize it for future years.

Featured image credit: Pexels