If you’re curious about the reasons behind the reduced tax refunds for the year 2023, you’re not alone. Numerous individuals found their refunds to be smaller compared to prior years, influenced by various factors.

 

The era’s finale

 

One major reason why tax refunds were smaller than usual was because the special tax benefits and deductions from the COVID period ended. Those extra payments and tax breaks that assisted us during the pandemic are no longer available, leading to smaller refunds for many people in 2023.

 

Several more tax deductions expired in 2022.

 

Child Tax Credits: In 2021, parents with two children under six years old could receive $7,200 in child tax credits. However, this amount decreased to $4,000 in 2022. This adjustment might lower your refund by as much as $3,200.

Charitable Contribution Deductions: Individuals who opt for the standard deduction could receive charitable contribution deductions of up to $300 ($600 for married couples filing jointly) in 2021. However, this deduction was not offered in 2022.

Capital Gains Taxes: In 2022, mutual fund managers sold profitable assets, leading to capital gains taxes for investors in those funds. However, investors with holdings in tax-sheltered accounts were exempt from paying capital gains taxes.

Unemployment Taxes: Numerous individuals who claimed unemployment benefits in 2022 found that insufficient taxes were withheld from their payments, leading to larger tax liabilities and reduced refunds.

Should I get a refund or not? That’s the question.

Numerous financial advisors caution against targeting tax refunds or over-withholding money from paychecks. They propose that rather than surrendering funds to the government until tax season for a refund, you could potentially achieve more by investing that money.

On the flip side, some argue that receiving a tax refund isn’t necessarily negative. They highlight the simplicity of receiving a refund compared to accurately calculating taxes to prevent owing money by year-end.

Deciding whether to pursue a tax refund is entirely your choice—there’s no definitive correct or incorrect answer.

Make the Most of Your Refund

If you opt to pursue a tax refund, there are a few steps you can take to optimize your refund:

• If you’re married, consider filing your taxes jointly.
• Make sure to use all the deductions and credits you can, like the child tax credit and child and dependent care credit.

Though there are both advantages and disadvantages to pursuing a tax refund, it’s crucial to ensure you’re maximizing your tax return. Seeking guidance from a tax expert could assist in comprehending your tax circumstances, capitalizing on all accessible deductions and credits, reducing tax expenses, and advancing toward your financial objectives.