Five Ways to Maximize Your Tax Refund

Some new tax rules may help you get more money back from Uncle Sam this year.

ByABC News via GMA logo
January 27, 2009, 7:54 PM

Jan. 28, 2009 — -- Now is the time to start thinking about your taxes because your refund could help you get through these tough economic times.

"Good Morning America" financial contributor and president of Ariel Investments Mellody Hobson shares five ways to maximize your tax refund this year.

As part of the housing bailout bill passed by Congress, homeowners who do not itemize their taxes can claim a property tax deduction of $500 or $1,000 if you are married and filing jointly, in addition to the standard deduction.

And if you were a first-time home buyer in 2008, you may be eligible for a tax credit of up to $7,500 or 10 percent of the purchase price, whichever is less.

There is an important catch to this credit though. You have to pay it back in the next 15 years, in equal amounts each year, which makes it a bit more like a loan than a credit. So if you took the maximum credit of $7,500, you would need to pay back $500 per year for the next 15 years. But it still helps you get some much needed cash now when the economy is so bad, and you can pay it back a little at a time as things get better.

If you were laid off in the last year, most of the expenses incurred while looking for a job can be deducted from your taxes, so carefully track these expenses. For example, any money you spent on creating and mailing your resume is deductible. You can also deduct expenditures for career coaches and headhunters. You can even deduct long distance or cell phone charges related to the job search, as well as travel expenses incurred for interviews, including mileage.

Increasing your exemptions may lower your eventual refund, but it will increase your take home pay during the year. For example, in 2008, the IRS issued approximately 107 million refunds averaging $2,400, or a total amount of $256 billion.

When you get a refund, it means you overpaid your taxes and essentially loaned the government money during the course of the year, free of interest.

With an average refund of $2,400, you could be entitled to three extra exemptions. In the 25 percent tax bracket, that could boost your take-home pay by $2,625 per year, and you'll have that money to use right away with every paycheck instead of waiting until the end of the year.

Mellody Hobson, president of Ariel Investments in Chicago, is "Good Morning America's" personal finance expert. Click here to visit her Web site, Amar Parikh contributed to this report.