Popular Tax Deductions and Credits

The Internal Revenue Service (IRS) provides guidelines on a variety of popular tax deductions and credits

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Here is an overview of some commonly utilized deductions and credits, along with key IRS guidelines.

Standard Deduction

  • Guidelines: The standard deduction is a fixed dollar amount that reduces the income on which you are taxed. The IRS adjusts these amounts annually.
  • Recent Update: The Tax Cuts and Jobs Act (TCJA) nearly doubled the standard deduction, making it more attractive for many taxpayers.

Itemized Deductions

  • Guidelines: Taxpayers can choose to itemize deductions instead of taking the standard deduction. Eligible expenses include medical expenses, state and local taxes, mortgage interest, and charitable contributions.
  • Documentation: Keep detailed records and receipts to support itemized deductions. Certain limits and restrictions may apply.

Child Tax Credit

  • Guidelines: The Child Tax Credit provides a credit of up to $2,000 per qualifying child. Income limits and other eligibility criteria apply.
  • Refundable Portion: Up to $1,400 of the credit per child may be refundable.

Earned Income Tax Credit (EITC)

  • Guidelines: The EITC is a credit for low to moderate-income individuals and families. The amount of the credit depends on income, filing status, and the number of qualifying children.
  • Income Limits: Income limits are adjusted annually. It is crucial to stay updated on the current limits.

Education Credit

  • Guidelines: The American Opportunity Credit and the Lifetime Learning Credit provide tax credits for qualifying education expenses. Eligibility criteria include enrollment status and income limits.
  • Form 1098-T: Educational institutions provide Form 1098-T to help taxpayers claim these credits.

Mortgage Interest Deduction

  • Guidelines: Taxpayers can deduct interest paid on qualified mortgage loans. There are limits on the amount of mortgage debt eligible for the deduction.
  • Home Equity Debt: TCJA eliminated the deduction for interest on home equity debt that is not used to buy, build, or substantially improve the home.

State and Local Tax (SALT) Deduction

  • Guidelines: Taxpayers can deduct state and local income taxes or sales taxes, and property taxes paid during the tax year.
  • Limitations: TCJA imposed a $10,000 cap on the total deduction for state and local property, income, and sales taxes.

Health Savings Account (HSA) Deduction

  • Guidelines: Contributions to HSAs are tax-deductible, and withdrawals for qualified medical expenses are tax-free.
  • Contribution Limits: The IRS sets annual contribution limits for HSAs.

Retirement Savings Contributions Credit (Saver's Credit)

  • Guidelines: The Saver's Credit provides a credit for eligible contributions to retirement savings accounts, such as 401(k)s and IRAs.
  • Income Limits: Income limits apply, and the credit percentage varies based on filing status and income.

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