What Are Some Common Tax Deductions And Credits Available To Individuals?

Maximize Your Tax Savings: Deductions and Credits

1. Standard Deduction: 

The standard deduction offers a fixed amount that taxpayers can deduct from their taxable income, adjusted yearly for inflation, without requiring detailed itemization of deductions based on their filing status.

2. Itemized Deductions:

i) Mortgage Interest Deduction: Taxpayers can deduct interest paid on qualified mortgage loans for their primary residence and, in some cases, a second home.

ii) State and Local Taxes (SALT) Deduction: Taxpayers can deduct state and local income taxes, property taxes, and sales taxes paid during the tax year.

iii) Charitable Contributions Deduction: Taxpayers who itemize deductions can deduct donations made to qualified charitable organizations, subject to certain limitations.

iv) Medical Expense Deduction: Taxpayers can deduct qualified medical expenses that exceed a certain percentage of their adjusted gross income (AGI).

v) Miscellaneous Itemized Deductions: Certain expenses, like unreimbursed job-related costs and tax prep fees, could be deductible if they surpass 2% of AGI, though these deductions are suspended from 2018 to 2025 under the Tax Cuts and Jobs Act.

3. Tax Credits:

i) Earned Income Tax Credit (EITC): A refundable tax credit for low-to-moderate-income individuals and families, particularly those with children.

ii) Child Tax Credit: The Child Tax Credit provides a non-refundable credit per eligible child under 17, with a portion being refundable up to a capped limit.

iii) Child and Dependent Care Credit: A tax credit for expenses paid for the care of qualifying dependents to enable the taxpayer to work or look for work.

iv) American Opportunity Tax Credit (AOTC): A tax credit for qualified education expenses paid for eligible students during the first four years of post-secondary education.

v) Lifetime Learning Credit: A tax credit for qualified education expenses paid for eligible students pursuing higher education, including undergraduate, graduate, and professional degree courses.

4. Retirement Savings Contributions: Contributions to retirement accounts like Traditional IRAs and 401(k)s may qualify for tax deductions or credits, contingent on the account type and the taxpayer's income.

5. Health Savings Account (HSA) Contributions: Contributions to HSAs may be deductible and can provide a tax-advantaged way to save for qualified medical expenses.

6. Educational Expenses:

i) Student Loan Interest Deduction: Taxpayers can deduct up to a certain amount of interest paid on qualified student loans.

ii) Tuition and Fee Deduction: Taxpayers may be able to deduct qualified tuition and fees paid for higher education.