Here are 5 deductions and credits to consider before filing your taxes.
If you are among the millions of taxpayers who expect a refund this year, Uncle Sam wants to remind you that unlike in 2020 and 2021, there were no stimulus payments for 2022. That means people should not expect an extra bump in this year’s tax refund.
Smaller Refunds
So far, average refunds have been running about $400 lower than last year. In mid-February 2023, the average refund was $3,140, the IRS notes, which is down a little more than 11% from the average refund in 2022 of $3,536.
Although this is likely a come-down for people who were expecting more, this is not necessarily bad news. Remember, when you receive a tax refund it’s because you overpaid the government, essentially giving them an interest-free loan.
For those who haven’t yet filed their taxes – due this year for most on April 18 – there are some specific changes to tax credits and deductions you should take note of before filing with the feds and state.
1. Premium Tax Credit
You may still qualify for temporarily expanded eligibility of the Premium Tax Credit, a refundable credit that helps certain households cover the premiums for health insurance purchased through the Health Insurance Marketplace. To receive this credit, notes the IRS, taxpayers must meet specific requirements and file a tax return with Form 8962.
2. Clean Vehicle Credit
If you bought a “green” car in 2022 – either new, previously owned or commercial – you may be able to claim a tax credit. Eligibility rules changed to claim a Clean Vehicle Credit under the Inflation Reduction Act of 2022, according to the Internal Revenue Service. A new credit for previously owned and commercial clean vehicles also was added.
Green cars, explains the IRS, are eligible plug-in electric motor vehicles, including added fuel cell vehicles. For more details, check out this FAQ list from the IRS on the previously owned clean vehicle credit and the new credit for qualified commercial clean vehicles.
3. Earned Income Tax Credit
For the Earned Income Tax Credit, eligible taxpayers with no children who received roughly $1,500 in 2021 will receive $560 for the 2022 tax year.
4. Child Tax Credit
Those who received $3,600 for each qualified dependent in 2021 for the Child Tax Credit will, if eligible, get $2,000 for each dependent for the 2022 tax year.
5. Child and Dependent Care Credit
The Child and Dependent Care Credit returns to a maximum of $2,100 in 2022 instead of $8,000 in 2021, reverting to pre-pandemic levels.
6. Charitable Contributions Change
During the pandemic, some temporary tax changes were enacted to make it more convenient for people to deduct charitable contributions. It didn’t last forever. Taxpayers who don’t itemize and instead take the standard deduction, won’t be able to deduct charitable contributions they made in 2022.
Want a Faster Refund?
The quickest way to get a tax refund, notes the IRS, is to file an electronic return and ask to have your refund deposited directly into a checking or savings account.
There are a couple of ways to do this:
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When using tax software, select ‘direct deposit’ as your refund method.
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Tell your tax preparer that you want to receive a refund by direct deposit.
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If you file by paper, you can still choose direct deposit. Note, though, it will take longer because of the extended time it takes to process paper tax returns mailed to the IRS.
Want to More Strategically Save Your Refund?
You can choose to have your tax refund deposited into up to three of your savings or checking accounts at your credit union or bank. To learn more, visit IRS.gov/directdeposit.
This article was originally posted on savvymoney.com
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