Looking for an unexpected tax deduction refund? Here’s what you might miss

If you’ve already filed your 2023 taxes, you may have done so because you were expecting a refund. After all, you might rely on it to pay important bills. However, there are many reasons why you may not have received the refund you expected. And if it feels like a trend, it’s not hard to understand why.

According to the IRS, the average tax refund for tax year 2022 was $1,963, a 10.8% decrease from the previous year. This may be due to a decline in certain pandemic-era tax credits, such as the child tax credit and the earned income tax credit.

Here are some reasons why your 2023 tax return may not be what you expected, and ways you can reduce your taxable income.

contract work

It’s no secret that contract work has grown tremendously over the past few years (in fact, according to a recent study by MBO Partners, there was a 132% increase in occasional independent work from 2020 to 2023, and an 89% increase in independent work overall). (At the time.) If you fall into the “occasional independent worker” category, you may not have known that you would have to do one of the following, especially if 2023 is your first year trying contract work.

• Check your estimated quarterly tax payments to make sure you’re covering any taxes not withheld for that type of work.
• Update your W-4 withholdings to make sure your job withholds enough taxes to cover both your day job and your contract work.

This is especially problematic if the additional income puts you in a higher tax bracket, resulting in a lower refund or even taxes owed.

change of circumstances

Adding a side job to your schedule isn’t the only thing that can affect your taxes. If your living situation changes in 2023, your refund may be reduced. Here are some situations that may reduce your tax refund amount:

• Get a pay raise at work
• If your tax status changes (e.g. marriage or divorce)
• Selling investments such as stocks or cryptocurrencies (may be subject to capital gains tax)

If you’re a parent, this means that when your children turn 17 in 2023, they will no longer be eligible to claim the child tax credit, worth up to $2,000 per qualifying child. Alternatively, you may qualify for a tax credit for other dependents, but only up to $500 per dependent.

silver lining

The good news is that despite the potential problems with your W-4, there are things that can work in your favor if you haven’t yet filed your taxes or are due next year. That’s the inflation adjustment for 2023 taxes. bracket. In fact, the IRS increased the standard deduction for 2023 by:

• $13,850 (single filer — up to $900)
• $20,800 (head of household — $1,400 increase)
• $27,700 (married, filing jointly — up to $1,800)

So there’s hope for larger refunds for those who don’t itemize.

For example, let’s say you make $100,000 per year. If you take the standard deduction as a single filer, your taxable income is $86,150. This means you’re in the 22% tax bracket, which means your federal tax liability would be approximately $14,260 (assuming no other deductions). You can also contribute to a traditional IRA until April 15, 2024, to further reduce your 2023 taxable income. So, this could be a solid option to reduce your tax burden in 2023.

Navigating tax software can be difficult. It’s likely that you forget to claim a tax deduction or credit, or don’t realize that the decisions you make will affect your tax liability. Therefore, hiring a tax professional can help you make the most of your hard-earned money.

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