Best investments for boosting your tax refund

2022-12-07

Retirement Contributions Lead to Bigger Tax Refunds

Favorable tax provisions for retirement planning make investing in your nest egg one of the best ways to boost your tax refund. The IRS even allows you to benefit twice when it comes to retirement accounts. This unique opportunity allows you to both deduct up to a certain limit and get a refundable credit if you earned less than a certain amount of money.

Here's how to take advantage of the same retirement contribution twice to maximize your tax refund:

Take the deduction for a traditional IRA, which is limited to $6,000 as of tax year 2022 (or $7,000 for filers ages 50 and up). Other retirement accounts also qualify.
You can then get an additional credit of up to $1,000, or $2,000 if filing jointly, when you contribute to an IRA or certain other qualified plans. This tax benefit is known as the Saver's Credit, also called the Retirement Savings Contribution Credit.

If you are eligible, you can open a traditional IRA and claim the credit for the previous year up until the upcoming tax deadline.

Roth IRAs work a bit differently when it comes to boosting your tax refund. You can't deduct Roth IRA contributions, but they do qualify for the Saver's Tax Credit.

Other retirement plans that qualify for the credit include:

401(k)
403(b)
SIMPLE IRA
SARSEP, or Salary Reduction Simplified Employee Pension Plan

Tax credits boost your refund more so than deductions, but they aren't available to filers at all income levels. They tend to favor taxpayers with low and moderate incomes.

To take advantage of the Saver's Credit for tax year 2022:

single taxpayers can earn no more than $34,000
heads of household can earn no more than $51,000
married taxpayers who filed jointly can earn no more than $68,000

By answering a few simple questions when filing your tax return with TurboTax, you'll receive recommendations for credits and deductions that are specific to your income and situation, boosting your tax refund.

Get Some Credit for Being Energy Efficient

Energy-saving improvements to your home pay off in a couple of ways: You save money over time through low or no energy bills and you get to take advantage of tax credits.

For example, through the Residential Clean Energy (RCE) credit, you can invest in an alternative energy system and claim 30% of the cost of the system through 2032.
After that, you can still claim a reduced percentage of the cost through 2034 for solar electric and solar water systems.

Improvements that the credit covers include qualified:

Solar electric systems
Solar water heaters
Small wind energy turbines
Geothermal heat pumps
Fuel cell property (subject to certain limitations)

In addition to the RCE credit above, the Energy Efficient Home Improvement credit is available for 2023 through 2032. This credit provides annual credits of up to $1,200 for improvements to your home including:

Home energy audits: $150
Exterior doors: $250 per door (up to $500 per year)
Exterior windows and skylights, central A/C units, electric panels and related equipment, natural gas, propane and oil water heaters, furnaces or hot water boilers: $600
Heat pumps and biomass stoves and boilers: $2,000 (this one category qualifies to go above the $1,200 annual limit)

This credit takes the place of the Nonbusiness Energy Property (NPE) credit that is still available through the end of 2022 but it has a lifetime limit of $500 ($200 for windows).

Eligible costs for the NPE credit include the purchase price and installation charges for efficient heating and air conditioning systems, water heaters, and stoves that run on biomass fuel. You may also claim a credit for the purchase of energy-efficient doors, windows, skylights, certain roofs and the cost of increasing insulation in the home. However, you cannot include the installation costs for this equipment in the credit.

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