IRS has cautioned that tax refunds may be reduced due to high inflation. According to an advisor, that will cause a double impact on families. A recent survey by Credit Karma found that many Americans must face financial difficulties, with around one-third relying on their tax refund to cover their expenses.
Some Advisors have warned that some filers may experience a “nasty surprise” when filing their taxes this year due to various factors. However, the American Rescue Plan of 2021 provided a financial boost to families through increased child tax credits, worth up to $3,600 per child, and dependent care tax credits of up to $4,000 per dependent.
Reasons for a smaller 2022 Tax Refund
The tax breaks have returned to their original levels. In 2022, the maximum child tax credit was $2,000 per child, and the child and dependent care tax credit were $1,050 per dependent, resulting in lower refunds. According to the speaker, individuals who did not receive the third stimulus payment had the opportunity to claim it on their 2021 tax return, which could increase their refunds.
Another change caused by the pandemic was the more favorable charitable deduction in 2021, offering tax benefits to taxpayers even if they did not itemize deductions. This deduction was $300 for single filers and $600 for joint filers.
Ways to increase your refund or lower your tax bill
With the April 18 tax deadline approaching, there are limited options to increase your refund or lower your tax bill. However, some opportunities still exist. Claim all tax credits and deductions: Take advantage of all available tax credits, such as the child tax credit, the earned income tax credit, and deductions for student loan interest, charitable donations, and mortgage interest.
Review your tax withholding: Ensure that your employer withholds the correct taxes from your paycheck. If you have had a change in your income or personal situation, you may need to adjust your withholding.
Contribute to a retirement account: Contributions to a 401(k) or traditional IRA can lower your taxable income, potentially reducing your tax bill. Keep track of medical expenses: Medical and dental expenses that exceed 7.5% of your adjusted gross income are tax-deductible. Keeping track of these annual expenses can help you maximize your deduction.
Be mindful of capital gains and losses: If you have sold investments, you may owe taxes on your capital gains. On the other hand, if you have losses, you can use them to offset your capital gains and reduce your tax bill. Consider a tax professional: A tax professional can help you identify tax-saving opportunities and ensure that you take advantage of all available tax benefits.