The IRS will begin issuing federal tax refunds, or rebates, in January 2017 to those who are entitled to money back. To avoid giving the government more of your hard-earned money than you have to, here are a couple of suggestions that could boost your tax refund check in 2017.
Max out your retirement accounts
Perhaps the smartest tax move you can make in 2016, 2017, or any other year, for that matter, is to contribute as much as possible to your retirement accounts.
For both 2016 and 2017, you can defer up to $18,000 of your salary into your employer's plan, such as a 401(k) or 457(b), with an additional $6,000 catch-up contribution allowed if you're 50 or older. While I understand that contributing the maximum amount may not be practical (or necessary) for you, the point is that there is probably room to increase your contributions by a significant amount.
If you contribute to a traditional or Roth IRA, you can contribute $5,500 for the 2016 and 2017 tax years, with an extra $1,000 contribution allowance for investors age 50 or older. Traditional IRA contributions can get you a nice tax deduction, and while Roth IRA contributions won't boost your refund, they will save money on your taxes down the road, as your withdrawals in retirement can be tax-free. You have until the April tax deadline in 2017 to make IRA contributions for the 2016 tax year, so you still have plenty of time.
There are also other types of retirement accounts you may be able to take advantage of if you own a small business or are self-employed. These include the SIMPLE IRA, SEP IRA, and solo 401(k). All three have higher contribution limits than the traditional or Roth IRA, so click on the links to read more about each if you're interested.
How much can saving for retirement boost your refund? Well, if you contribute $5,000 to a traditional IRA, we're talking about an extra $1,250 on your refund check if you're in the 25% tax bracket. If you're a low- to middle-income taxpayer, you could even qualify for an additional tax credit, known as the saver's credit. What's more, if you contribute $5,000 annually for 30 years, it could build up to a $748,000 nest egg, based on the stock market's historical average returns.
Finally, it's important to note that the deduction for qualified retirement contributions is an above-the-line deduction, which means you can take advantage regardless of whether you itemize deductions on your return.
Are you better off itemizing?
Speaking of itemizing, it may be worth a quick check to see whether itemizing could save you money. Most Americans choose to take the standard deduction. While the standard deduction may be the more lucrative choice for many, it's fair to assume that some of the 71% of Americans who choose it would be better off itemizing.
While there are hundreds of potential itemized deductions you may be able to take advantage of, there are a few big deductions to consider that can let you know if it might be worth it to try and itemize.
- Mortgage interest
- Charitable contributions
- Medical expenses in excess of 10% of your AGI (7.5% if over 65)
- Property taxes (home, car, and other property)
For reference, the standard deduction is currently $6,300 for single taxpayers and married taxpayers filing separately, $9,300 for heads of household, and $12,600 for married taxpayers filing jointly.
If your major items in the list above add up to more than the standard deduction, it's a no-brainer: You should itemize. If these major items don't quite add up to the standard deduction amount, but are close, it may be a good idea to try and itemize and see if these might make itemizing worthwhile when combined with any other itemized deductions. It could potentially save you hundreds, or even thousands of dollars, so it could be well worth the time it takes to do your taxes "the long way."
Also, keep in mind that some deductions can be taken by all taxpayers, so don't include them when considering whether to itemize or not. These include traditional IRA contributions, the tuition and fees deduction, teacher classroom expenses, student loan interest, and moving expenses, to name some of the most common.
When will you get your 2017 refund?
Once you file your tax return in 2017, your refund shouldn't take more than a few weeks to process. The IRS will begin processing refunds in early February, and you can use the IRS's Where's My Refund tool to check on yours after your tax return has been submitted and accepted.