Tax season can be stressful and complicated. Thankfully, tax credits and tax deductions can reduce your tax bill and ease the frustration of owing too much money to the IRS.
Here are some common IRS tax deductions and credits. Whether you are a homeowner, parent, charitable giver, older adult, or self-employed person, there are various ways to optimize your tax savings.
IRS tax return common credits and tax deductions
If you haven’t filed your taxes yet (Tax Day is April 15), you can use these and other tax breaks (if you are eligible for them) to reduce tax liability. If you have already filed, this information can help you plan to maximize your tax savings for the 2024 tax year (returns you file in early 2025).
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Consult with a qualified tax professional to ensure you take full advantage of the credits and deductions available to you in compliance with tax laws. Doing so can help you to keep more of your hard-earned money and achieve greater financial stability.
Note: This is a list of common tax deductions and credits that may be available to you. Please note that it is not exhaustive and does not include any particular order or ranking.
The standard deduction
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If you are like most taxpayers, you take the standard deduction instead of itemizing deductions.
- The standard deduction reduces your taxable income by a predetermined, fixed dollar amount.
- Itemized deductions can also reduce your taxable income, but the amount varies and is not predetermined.
However, to decide whether to itemize, you must know the standard deduction amount for each tax year. See What’s the Standard Deduction for 2023 and 2024?
Family-focused tax credits
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Child Tax Credit: The child tax credit (CTC) allows eligible parents and caregivers to reduce their tax liability, possibly resulting in a tax refund. However, not everyone can claim the CTC, and credit amounts can differ for those who can. The child tax credit is based on income, filing status, the number of children, and whether the IRS considers your dependent a qualifying child. For more information on the 2023 CTC (for tax returns filed now, see Child Tax Credit 2023: What You Need to Know.
Earned Income Tax Credit (EITC): Aimed at individuals and families with low to moderate income, the EITC is a refundable tax credit based on earned income and family size. It can financially boost working individuals, especially those with children, but is also available to some taxpayers without children. Unfortunately, many eligible individuals are unaware of the credit or don’t know how to claim it, resulting in it being overlooked.
Child and Dependent Care Credit: The Child and Dependent Care Tax Credit can help you pay for childcare or dependent care services to enable you to work or search for a job.
- You can claim up to $3,000 of eligible childcare expenses for one qualifying individual or up to $6,000 for two or more qualifying individuals.
This is a non-refundable tax credit, meaning it can reduce your federal income tax bill, but you cannot receive the credit as a tax refund. Learn more at Summer Camp Tax Breaks for 2023.
Adoption Credit: The adoption credit is available for taxpayers who adopt or start the adoption process in a given tax year. The credit can be applied to international, domestic, private, and public foster care adoptions. However, it does not apply to those who adopt their spouse's child. The federal adoption tax credit for the 2023 tax year is worth up to $15,950 (inflation-adjusted yearly), but income limits apply.
Homeowner tax deductions
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Mortgage Interest Deduction: Homeowners can deduct the interest paid on mortgage loans, reducing taxable income. This deduction can be particularly beneficial during the early years of a mortgage when interest payments are higher. How much you can deduct might depend on when you bought your home and your filing status. For more information, see Deducting Mortgage Interest on Your Tax Return.
Mortgage Points: Points paid at the time of mortgage origination can often be deducted in the year they were paid, potentially lowering taxable income.
Gains on Home Sale: Individuals who sell their primary residence may qualify to exclude a portion of the capital gains from their taxable income, provided they meet certain ownership and use requirements. This is known as the capital gains tax exclusion for home sales.
Energy-Efficient Home Improvements: Taxpayers who invest in energy-efficient home improvements may be eligible for tax credits. For example, homeowners can lower their federal income tax bills by installing new energy-efficient windows, doors, water heaters, furnaces, air conditioners, and solar panels.
Medical deductions
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Medical Expenses: Taxpayers who itemize deductions can deduct qualifying medical expenses that exceed a certain percentage of their adjusted gross income (AGI), which can provide some relief for substantial healthcare costs.
Health Savings Account (HSA) Contributions: Contributions to an HSA are tax-deductible and can be used to pay for qualified medical expenses, offering a tax-efficient way to save for healthcare costs.
Long-term Care Insurance Premiums: Long-term care insurance provides benefits to policyholders dealing with long-term care expenses. If your insurance premiums are substantial, you may be eligible to claim a deduction for some or all of the amount you pay to keep your policy. This can help decrease your tax liability. However, it is important to remember that this tax benefit has certain IRS limitations.
Education credits and deductions
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Student Loan Interest Deduction: If you paid interest on your student loan last year, you might be eligible for a tax deduction worth up to $2,500. By using this deduction, you can lower your taxable income.
- However, the IRS has specific rules for who can claim the student loan interest deduction; only some are eligible for the maximum amount.
For more information, see How to Claim the Student Loan Interest Deduction.
AOTC: The American Opportunity Tax Credit (AOTC) is a partially refundable tax credit available to those currently enrolled in college. Eligible taxpayers can claim 100% of the first $2,000 spent on qualified education expenses and 25% of the next $2,000. The maximum credit is $2,500 per qualifying student. If the credit exceeds the tax owed, you can receive a refund for 40% of the remaining amount, up to $1,000 per qualifying student.
Lifetime Learning Credit: The Lifetime Learning Credit (LLC) is worth up to $2,000 per tax return and can be claimed for an unlimited number of years. However, the credit is not refundable. Unlike the American Opportunity tax credit, graduate students are eligible to claim the LLC, and students do not need to attend college at least half-time to qualify.
For more information, see 11 Education Tax Credits and Deductions.
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Home Office Tax Deduction: Self-employed individuals are typically eligible to deduct expenses related to their home office. Here's more about the home office tax deduction.
Educator Expense Deduction: The educator expense tax deduction (also called the teacher deduction) allows some teachers, counselors, principals, or other instructors to write off classroom expenses and supplies on federal income tax returns. For the current tax season (i.e., the 2023 tax year), the maximum educator expense deduction is $300.
Military Moving Expenses: Active-duty U.S. military personnel who relocate due to a military order and permanent change of station may be able to deduct certain moving expenses not reimbursed by the military.
Special deductions for older ddults
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Qualified Charitable Distributions: If you are 70½ or older, you can make qualified charitable distributions (QCDs) directly from your IRA to eligible charitable organizations.
- These distributions can be helpful for retirees who want to support charitable causes while minimizing their tax liability.
- QCDs fulfill required minimum distributions (RMDs) without being included in adjusted gross income (AGI).
Extra Standard Deduction: Once you turn 65, you become eligible for an extra standard deduction in addition to the regular standard deduction. This extra deduction reduces taxable income, potentially allowing retirees to keep more of their hard-earned money.
Energy tax credits
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EV Tax Credit: To encourage people to purchase electric vehicles (EVs), the federal government offers a tax credit of up to $7,500 for certain "clean vehicles." The EV tax credit amount depends on factors like the vehicle's sourcing, assembly, and when it was put into service. Used EVs may also qualify for a tax credit of up to $4,000. Due to new EV tax rules, beginning January 1, 2024, you may be able to take the clean vehicle credit as a discount when purchasing the vehicle from a registered dealer. (Income limits apply to the EV credit.)
EV Charger Tax Credit: If you install an electric vehicle charging station at home, you can receive a federal EV charger tax credit equal to 30% of the cost of hardware and installation expenses. The maximum credit amount is $1,000. Additionally, starting last year, the EV charger tax credit for home and business installations applies to other EV charger equipment like bidirectional (two-way) chargers.
Miscellaneous tax deductions and credits
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Charitable Contributions: Donations made to qualifying charitable organizations are tax-deductible for those who itemize, which can incentivize philanthropic giving. Be sure to contribute to legitimate charities and get and keep receipts for your donations. The IRS says that in most cases, the amount of charitable cash contributions taxpayers can deduct as an itemized deduction is usually limited to 60% of the taxpayer’s adjusted gross income.
Jury Duty Pay Returned to Employer: If an employer continues to pay an employee's salary while serving jury duty and requires the employee to turn over the jury duty pay, the employee can deduct the amount turned over to the employer. Keep in mind that jury pay is taxable income.
Gambling Losses: While gambling winnings are taxable, taxpayers can deduct gambling losses up to the amount of their winnings if they itemize deductions. For more information, see Taxes on Gambling Winnings and Losses.
Bad Debt (Uncollected): If you have previously included an amount in your income and cannot collect it, you may be able to deduct it as a bad debt. Check out IRS Topic 453 for more information.
Saver’s Credit: People with low to moderate incomes who contribute to retirement savings accounts may qualify for a tax credit designed to encourage retirement savings.
- If your income falls within the credit limits, you can claim up to $1,000 for single filers or $2,000 for joint filers.
As Kiplinger has reported, for those who qualify for the Saver's Credit, the lower your income, the higher the percentage of retirement plan contributions you get back on your tax return.
Related
- Types of Income the IRS Doesn’t Tax
- Seven IRS Tax Changes to Know Before You File
- Most-Overlooked Tax Credits and Deductions
- Federal Tax Brackets and Income Tax Rates
