Not Happy With Your Recent Tax Refund? These Moves Could Set the Stage for a Larger One in 2024

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There are steps you can take to lower your tax burden. Read on to learn more. 

At the start of the 2023 tax season, filers were warned to gear up for smaller refunds than what they received in 2022. The reason? Many of the pandemic-era tax benefits that came about in 2021, like the boosted Child Tax Credit, expired that same year. So that left filers with fewer tax breaks to claim for 2022.

As of the week ending April 21, the average tax refund was $2,753. A year prior, it was $3,012, so that’s a notable difference.

If you’re not happy with your most recent tax refund, there are steps you can take to eke out a larger one. But it’s also worth noting that a smaller tax refund isn’t necessarily a bad thing.

How to boost your tax refund

The IRS offers taxpayers a host of opportunities to lower their taxes. And perhaps the most effective way to do so is to take advantage of savings plans like IRAs, 401(k)s, and HSAs.

If you fund a traditional IRA or 401(k), the money you put in for retirement savings will represent earnings the IRS can’t tax you on. So if you normally don’t save for retirement in one of these plans but make a $3,000 contribution in 2023, you’ll protect $3,000 of earnings from being taxed. That could lead to a higher refund when you file your 2023 taxes in 2024.

Now do note that it’s only traditional IRAs and 401(k)s that give you an upfront tax break. If you fund a Roth IRA or 401(k), your contribution won’t exempt your income from taxes.

Another plan worth looking at is a health savings account. If you’re enrolled in a high-deductible health insurance plan — one with an individual deductible of $1,500 or more, or a family deductible of $3,000 or more — then your plan might render you eligible for an HSA. In that case, you can set aside funds on a pre-tax basis for healthcare spending purposes, thereby exempting more of your earnings from taxes.

Should you try to boost your tax refund?

It definitely pays to take advantage of IRAs, 401(k)s, and HSAs. Aside from the tax benefits these plans give you, they also help you save money for important goals, like retirement and future healthcare. But while it’s a good idea to contribute money to these plans, you may not want to fixate so much on a larger tax refund.

See, a tax refund is simply money you were entitled to collect during the year but didn’t. If you got a $600 refund this year, it means you were entitled to an extra $600 in 2022 you didn’t collect.

Now, think back on 2022. Could you have used an extra $50 a month? Given what inflation looked like, the answer is probably yes.

As such, while you can definitely take steps to be as tax-savvy as possible, you shouldn’t necessarily sweat it if this year’s tax refund is lower than the tax refund that hit your bank account in 2022. All that means is that you collected more of your money as you actually earned it.

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