The information in this article is up to date for tax year 2023 (returns filed in 2024).
Want to save a lot of money on your taxes? Taking some time to familiarize yourself with available tax credits and deductions can help you save thousands of dollars on your tax return. Both tax credits and deductions play a key role in reducing what you owe, but they work differently. Tax deductions decrease your taxable income. While tax credits give you a dollar-for-dollar reduction on your tax bill. Here are some of the most valuable tax breaks available this season and how to determine if you qualify.
Child Tax Credit
According to LendingTree, it costs parents an average of $237,482 to raise a child to 18 years old. The kicker is that figure doesn’t even include the cost of sending them to college. Fortunately, the Child Tax Credit can help put some cash back in your wallet. The credit is worth $2,000 per child aged 16 or younger and up to $1,600 is refundable.
Note: Lawmakers are currently trying to increase the refundable portion to $1,800 for tax year 2023. The amount would increase to $1,900 for tax year 2024 and $2,000 in tax year 2025. If the bill passes, the IRS will automatically issue you the additional funds so there’s no need to delay filing your taxes.
Child and Dependent Care Credit
Did you pay someone to take care of your kids or dependent with disabilities so you could go to work? If the answer is yes, you may be able to claim the Child and Dependent Care Credit. The credit gives you back a percentage of what you spent on care expenses. To qualify for the credit, the person must be:
- A child aged 12 or younger.
- A spouse who is unable to care for themselves and lived with you at least half of the year.
- Any other person who is unable to care for themselves, lived with you at least half of the year and could be claimed as a dependent on your tax return.
The Child and Dependent Care Credit is worth 20% to 35% of your care expenses. You can claim up to $3,000 of expenses for one person or $6,000 for two or more people.
Earned Income Tax Credit (EITC)
The Earned Income Tax Credit was designed to give workers with low to moderate incomes (particularly those with children) a financial boost. For tax year 2023, the credit is worth up $7,430. However, the maximum you can receive is $600 if you don’t have any children. Four out of five eligible taxpayers claim the EITC. Don’t be the one who misses out. File your taxes with ezTaxReturn and we’ll guide you step-by-step to the tax credits and deductions you deserve. Get the biggest possible refund, guaranteed.
Saver’s Credit
Saving for retirement? There’s a tax credit for that. The Saver’s Credit is a special tax break for low and moderate-income workers who make contributions to a retirement account. Depending on your adjusted gross income (AGI) and filing status, you can get 50%, 20% or 10% of the first $2,000 you save. In other words, the credit is potentially worth up to $1,000, $400 or $200.
American Opportunity Tax Credit
Going to college is a huge financial decision. Tuition is expensive and the major you choose can dictate how much money you will earn in the future. Claiming an education credit can help ease the financial burden. If you paid for tuition, books and other supplies, you may qualify for the American Opportunity Tax Credit (AOTC). This can save you up to $2,500 on your taxes. The best part is if the credit reduces your tax bill to zero, you can receive the remaining credit (up to $1,000) as a refund. Students can only claim the AOTC during their first four years of college and you must be enrolled at least part-time for a semester.
Lifetime Learning Credit
Whether you’re pursuing a degree or taking courses to enhance your job skills, you may be eligible for the Lifetime Learning Credit. It is worth up to $2,000 per tax return. Unlike the AOTC, there is no limit on the number of years the credit can be claimed.
Student loan interest deduction
Many Americans take out student loans to pursue their college degree and end up graduating with significant debt. If you’re currently paying back student loans, you may be able to deduct up to $2,500 of paid interest on your tax return. You’ll automatically receive a Form 1098-E, Student Loan Interest Statement from your school if you pay more than $600 in interest for the year.
Educator expenses deduction
Teachers tend to go above and beyond to ensure their students have everything they need. This often means dipping into their own pockets for supplies. If you haven’t already been reimbursed for your purchases, you may be able to get your money back when you file your taxes. Educators can deduct up to $300 ($600 for married couples if both parties are educators). Qualified expenses include books, supplies, computer equipment and fees paid to attend professional development courses.
Medical and dental expenses deduction
If you itemize, you can deduct the portion of your medical and dental bills that exceeds 7.5% of your adjusted gross income. You can deduct fees paid to your doctor or dentist, the cost of prescription glasses, hearing aids, transportation to appointments and things of that nature. However, funeral and burial costs are nondeductible as well as most cosmetic surgeries.
Mortgage interest deduction
Homeowners can save a lot of money on their taxes by claiming the mortgage interest deduction. The amount you can claim depends on when you purchased the property. Longtime homeowners can deduct the interest paid on mortgages up to $1 million ($500,000 if married filing separately). Meanwhile, those who bought their home after December 15, 2017, can only deduct the interest paid on mortgages up to $750,000 ($375,000 if married filing separately).
Home office deduction
If you’ve spent the last year working from home, you may be wondering if you can deduct any of the expenses. The answer is probably no. Under the Tax Cuts and Jobs Act (TCJA), an employee’s home office expenses are nondeductible. However, you can claim the home office deduction if you’re self-employed and use the space regularly and exclusively for business. If your office also serves as a guest room or play area, you cannot claim the deduction.
Get your biggest possible refund, guaranteed.
The articles and content published on this blog are provided for informational purposes only. The information presented is not intended to be, and should not be taken as, legal, financial, or professional advice. Readers are advised to seek appropriate professional guidance and conduct their own due diligence before making any decisions based on the information provided.
