As we enter into tax season, it’s critical to understand the difference between tax deductions and credits and how it may affect your personal return. It could mean the difference between owing the Internal Revenue Service (IRS) more and receiving a refund. Very simply: tax credits reduce your tax bill itself on a dollar-for-dollar basis, while deductions reduce the income on which your tax is based. Both can have a dramatic impact on what you owe or receive from the IRS this year.
The 2025 tax year saw several substantial changes go into effect. The standard deduction once again increased in an effort to offset the impacts of inflation. Seniors, those over age 65, also now qualify for an additional $6,000 deduction. The Opportunity, Benefits, and Business Advancement Act (OBBBA) introduced other special deductions for tips, overtime, and car loan interest.
This guide will help you to more fully understand all of the major federal tax credits and deductions available in the 2025 tax year. If you own a home, have children, work for a company or for yourself, we’ll discuss several strategies in which to maximize your tax savings. We’ll also go through common mistakes and how to keep more of your hard-earned dollars.
Let’s start with the basics.
Defining Tax Deductions and Tax Credits
Tax deductions and credits are fundamentally different and will have varying impacts on your personal tax return. You’ve probably heard of the standard deduction and itemized deductions. After defining deductions and credits, we will dive deeper into the nuances of deductions.
A tax deduction reduces the amount of income on which you will owe taxes, otherwise known as your taxable income. The value of a deduction depends on how much tax you would owe on each extra dollar of taxable income. Your tax rate goes up as your income increases over certain thresholds, called marginal tax brackets. The higher your marginal tax bracket, the more valuable the deduction. Deductions ultimately reduce the amount of income that is subject to taxation. They are useful in lowering the amount you’ll owe on your tax bill.
A tax credit, on the other hand, reduces your tax bill dollar-for-dollar, as we mentioned in the very beginning. For example, if you owe $2,000 in taxes and you are eligible for a $1,000 tax credit, your tax bill immediately drops to $1,000. In general, credits tend to be more valuable than deductions.
There are also refundable and nonrefundable tax credits. A refundable credit can reduce your tax liability to an amount below zero, which would result in a refund owed to you. A nonrefundable credit can only lower your tax liability to zero. Any amount that would result in a refund is lost. In subsequent sections we’ll dive a bit deeper into refundable and nonrefundable credits.
Switching back now to tax deductions, it’s important to note they come in a few different forms. First, there are above-the-line deductions, then the standard deduction and itemized deductions. Let’s start with above-the-line deductions.
An above-the-line deduction, which is also referred to as an adjustment to income, reduces your adjusted gross income (AGI) and can be claimed regardless of whether you take the standard deduction or itemized deductions. These include items such as student loan interest, self-employment taxes, and contributions to traditional IRAs and HSAs. Above-the-line deductions are reported on Schedule 1 of Form 1040.
Next up is the standard deduction. This is the most common deduction to take among US taxpayers. The standard deduction allows taxpayers to deduct a flat dollar amount and to avoid tracking deductible expenses. This flat dollar amount reduces your taxable income, as discussed previously. More than 90% of taxpayers choose the standard deduction over itemized deductions.
Lastly, tax filers can choose to use itemized deductions instead of the standard deduction, if they prefer. These are specific expenses you are allowed to deduct against your adjusted gross income and include mortgage interest, state and local taxes, charitable contributions, and medical expenses that exceed 7.5% of your AGI. Itemized deductions are listed on Schedule A.
Choosing Between the Standard Deduction and Itemizing
You really should only choose to itemize if the total amount of itemized deductions exceeds the standard deduction you would otherwise qualify for. The standard deduction is far more simple and because of its recently increased limit, it is the better choice for the vast majority of taxpayers.
Major Federal Tax Credits
Tax credits are powerful opportunities to reduce or eliminate your tax bill. There are several major credits we’ll now review.
Child Tax Credit
The Child Tax Credit provides up to $2,200 per qualifying child under the age of 17. Up to $1,700 of the credit is refundable. This means if you don’t owe any taxes, you can receive up to this amount as a refund.
To meet eligibility requirements, your child must be under age 17 at the end of the tax year. They must be claimed as your dependent, be a U.S. citizen or legal permanent resident. They must have a valid Social Security number as well.
The Child Tax Credit does begin to phase out for single filers with a modified adjusted gross income (MAGI) of over $200,000, meaning folks with income over that amount will not be able to claim all or any of the credit. For married couples filing jointly, this amount is raised to $400,000.
Child and Dependent Care Credit
This is a nonrefundable credit that will help offset your family’s childcare and dependent care costs. You can claim 20-35% of up to $3,000 in expenses for one qualifying dependent, or up to $6,000 for two or more qualifying dependents. This credit can apply to care for children under the age of 13, a disabled spouse, or a disabled dependent. The caregiver, however, can’t be your spouse or a person you claim as a dependent.
The percentage you can claim is dependent upon your adjusted gross income. The more income you earn, the lower the percentage you’ll be able to claim.
Earned Income Tax Credit
The EITC is a refundable credit that was designed to help lower and moderate income taxpayers. In 2025, the credit ranges from $649 for filers with no qualifying children to $8,046 for those with three or more qualifying children.
There are income limits associated with this credit. At $68,675 for married couples filing jointly who have three or more children, the credit no longer applies. The income limit is even lower for those with fewer or no qualifying kids. The taxpayer’s investment income must also be $11,950 or less.
American Opportunity Credit
There are two major education credits that help with the cost of college. The first is the American Opportunity Credit. This one is worth up to $2,500 per eligible student for the first four years of an undergraduate degree program. It is a refundable credit that covers 100% of the first $2,000 in qualified expenses, and then 25% of the next $2,000. The maximum refundable amount is 40% of the $2,500 credit, which in 2026 is $1,000.
There is a phase out associated with this credit as well. For single filers the phaseout begins with a modified adjusted gross income (MAGI) of more than $80,000, or married filing jointly MAGI at $160,000. The credit is completely phased out at $90,000 for single filers and $180,000 for joint.
Lifetime Learning Credit
This second education credit is worth $2,000 per tax return and not per student. It is also a refundable credit that covers up to 20% of $10,000 in qualified educational expenses. While the American Opportunity Credit can only be used for undergraduate programs, the Lifetime Learning Credit can be used for undergrad, graduate, and professional degree programs. You can also use it for an unlimited number of years.
Again, there is a phase out that starts at $80,000 MAGI for single tax filers and $160,000 for joint.
Adoption Credit
For families that went through the adoption process, the Adoption Credit can help offset qualified adoption expenses. For the 2025 tax year, a family can claim up to $17,280 per child for adoption related-costs that could include fees and costs associated with agencies, courts, attorneys, and travel.
The Adoption Credit is also now partially refundable, up to $5,000 per qualifying child. This is a significant and important recent change for families who are going through the adoption process.
Retirement Savings Contributions Credit (Saver’s Credit)
Lower to moderate income people can qualify for this nonrefundable credit by contributing to retirement accounts. Filers can claim 10%, 20%, or 50% of up to $2,000 in contributions for single filers and $4,000 for married couples filing jointly. The contributions must be made to a 401(k), IRA, or other qualified retirement plan.
To qualify for this credit, filers must have an AGI under $76,500 for joint filers, $57,375 for heads of household, and $38,250 for single filers.
Clean Vehicle Credit
Part of the OBBBA was the elimination of the Clean Vehicle Credit. However, if you purchased your electric vehicle (new or used) on or before September 30, 2025, you may be eligible for the credit.
The credit is generally nonrefundable for up to $7,500 for new plug-in EVs or fuel cell electric vehicles (FCV). It’s available to both individuals and businesses. To qualify you must have a MAGI of less than $300,000 for married filing jointly, $225,000 for heads of household, and $150,000 for single filers. You may use your MAGI from the year in which you received the vehicle or the year before, whichever is less.
Residential Clean Energy Credit
Homeowners can claim 30% of the cost of installing solar panels, solar water heaters, geothermal heat pumps, small wind turbines, and battery storage systems through 2032.This credit is nonrefundable, so it can only reduce your tax bill down to zero at the most.
Energy Efficient Home Improvement Credit
This nonrefundable credit will cover 30% of costs for energy-efficient improvements. These improvements could include HVAC systems, windows, doors, heat pumps, and insulation. There is a cap of $1,200 for most improvements with the exception of heat pumps where filers can receive up to $2,000. The total maximum credit is then worth $3,200.
Credit for the Elderly or Disabled
Taxpayers who are 65 years of age or older, or those who are younger than 65 but are permanently and totally disabled, you may qualify for this nonrefundable credit. This credit can range from $3,750 to $7,500 depending upon the filers’ status and income level.
To qualify for the Credit for the Elderly or Disabled, taxpayers must fill out the Schedule R with their return.
Those are the major federal credits for the 2025 tax year. Be sure to work with your tax professional to understand what you will qualify for as these credits can substantially lower your tax burden for the year.
Now, let’s turn back to deductions and dive into what’s available for taxpayers this season. Once again, deductions reduce the amount of income that is taxable.
Standard Deductions
More than 90% of tax filers will choose the standard deduction. For the 2025 tax year, the standard deduction is $15,750 for single taxpayers (and married but filing separately), $31,500 for married filing jointly (and qualifying surviving spouses), and $23,625 for heads of households.
If that amount seems high to you, it’s because the federal government raised the standard deduction due to higher inflation. There’s also a new senior ‘bonus’ deduction for people over the age of 65. This $6,000 is added onto the standard deduction for each person who qualifies. A couple who are both over age 65 and are married filing jointly would receive $12,000 extra on top of the $31,500 standard deduction.
In the beginning of this guide we discussed above-the-line deductions, which can be claimed whether you take the standard deduction or itemize your deductions. Let’s discuss these important benefits in a bit more detail.
Retirement Account Contributions
Depending on whether you are covered by a workplace retirement plan and your income level, you may be able to deduct contributions to traditional IRAs. In the 2025 tax year, the contribution limits are $7,000 for tax filers under the age of 50, or $8,000 for those 50 and older.
Health Savings Account (HSA) Contributions
If you are enrolled in a high-deductible health plan, you can deduct contributions to your HSA. The limit for contributions is $4,300 for individuals or $8,550 for families. If you are 55 or older you can contribute an additional $1,000 to either of those amounts.
Student Loan Interest Deduction
Millions of Americans are working to pay off their student loans. You can deduct up to $2,500 of paid student loan interest each year. The deduction does begin to phase out for single filers with a MAGI of $80,000 and joint filers at $165,000. The deduction is eliminated at $95,000 for single filers and $195,000 for married filing jointly.
Self-Employment Tax Deduction
People who are self-employed can deduct 50% of their self-employment tax. This is because people who are self-employed pay both the employer and employee portions of Social Security and Medicare taxes.
Self-Employed Health Insurance Deduction
If you work for yourself and pay for your own health insurance, you are able to deduct 100% of premiums for yourself, your spouse, and your dependents. This deduction applies to medical, dental, and qualified long-term care insurance.
Educator Expenses Deduction
Teachers can deduct up to $300 of unreimbursed expenses for classroom supplies, books, and equipment. If you and your spouse are both educators, you can deduct up to $600.
Itemized Deductions
Let’s move on to itemized deductions. Again, you’ll only want to itemize if your total amount of deductions exceeds the standard deduction amount. These deductions are reported on Schedule A of the 1040.
State and Local Taxes (SALT)
You may deduct your state and local income taxes or sales taxes (not both). You can also deduct your property taxes if you own your home. The SALT deduction got a boost from the OBBBA in 2025 and is now $40,000 (up from just $10,000) for single and married filers, but $20,000 for those who are married but filing separately.
The SALT deduction begins to phase out once AGI exceeds $500,000. At $600,000 the deduction drops back down to $10,000.
Mortgage Interest Deduction
Homeowners can deduct the interest they paid on a mortgage worth up to $750,000 ($375,000 if married filing separately). These loans must have been taken out after December 15, 2017. If the loan is older, the interest deduction is for up to $1 million in mortgage debt. The mortgage must be on either your primary or your secondary residence.
If you’re thinking about paying off your mortgage early, check out one of our earlier posts for a detailed analysis.
Deducting Charitable Contributions
Taxpayers can deduct donations to qualified charitable organizations. For cash donations, you can deduct up to 60% of your AGI. For non-cash donations, such as clothing, food, or other items, there are different requirements. If your noncash contribution is more than $500, you must fill out Form 8283 and attach it to your return. If the contribution is between $500 and $5,000, you must fill out Section A of that form. If the contribution is worth more than $5,000, you must obtain a qualified appraisal of the item or group of items and complete Section B as well.
It is best practice to maintain good records of documentation and receipts detailing your charitable contributions no matter what.
Deducting Medical and Dental Expenses
You are allowed to deduct qualified medical and dental expenses that exceed 7.5% of your AGI. Qualified expenses include prevention, treatment, and diagnosis related expenses. Also insurance premiums and transportation related to medical care are allowed to be included.
Deducting Casualty and Theft Losses
If you live in a federally declared disaster area, you may deduct casualty and theft losses only if they exceed $100 per event and the total losses must exceed 10% of your AGI.
What’s New and of Note This Tax Season
The previous deductions have all been around in some form for a while now. There are, however, some new deductions for the 2025 tax year that you’ll need to know about. These were introduced with the passing of the OBBBA and are set to expire after 2028.
‘No Tax on Tips’ Deduction
Employees who earn tips can deduct 100% of qualified tip income from their taxable income. Cash tips, credit card tips, and other tips reported on Form 4070 to the employer are all included in this new deduction. Filers that are considered eligible for this benefit must work in traditionally tipped jobs such as servers and bartenders, as well as hairstylists, delivery drivers, and hospitality workers.
Tips need to be reported to your employer and included on your W-2 to count. The deduction is reported on Schedule 1 and is above-the-line, meaning it can be taken whether or not you item deductions. The maximum annual deduction is $25,000 and it may not exceed your net income. The deduction phases out for single filers with a MAGI of $150,000 and $300,000 for joint filers.
‘No Tax on Overtime’ Deduction
Employees who earned qualified overtime wages can deduct them whether or not they itemize deductions, as of 2025. This means for weeks you worked more than 40 hours and were paid time-and-a-half or more, you can claim this amount as an adjustment to income. Both hourly and salaried employees are included, but all need to qualify for overtime under the Fair Labor Standards Act.
Your employer must separately report overtime wages in Box 14 on your W-2. The maximum annual deduction is $12,500 for single filers and $25,000 for married filing jointly. The deduction begins phasing out for taxpayers with a MAGI over $150,000 for single filers and $300,000 for married filing jointly. It is available whether you take the standard deduction or itemize.
Car Loan Interest Deduction
Another new deduction is for those with car loans. Individuals can deduct the interest they paid on their auto loans so long as the vehicle was used mostly for personal reasons. The deduction is limited to $5,000 in interest for single filers, and $10,000 for married filing jointly. The deduction begins to phase out for single filers with a MAGI over $100,000 and joint filers above $200,000.
To qualify, the interest must be paid on a loan that originated after December 31, 2024. If you refinance the loan, the interest paid on the refinanced amount is also eligible for the deduction. The car must have a gross weight of less than 14,000 pounds and must have been assembled in the United States. This above-the-line deduction is available to both itemizing and non-itemizing filers.
It’s crucial to remember that above-the-line deductions, including all the new deductions listed in the previous section, can be claimed in addition to the standard deduction or itemized deductions. You cannot claim both the standard deduction and also itemize deductions that are not considered to be above-the-line.
There have been a lot of significant changes in the IRS tax code for the 2025 year. The most relevant to tax payers include:
- Higher standard deduction limits to adjust for inflation.
- An extra $6,000 senior citizen deduction available for taxpayers aged 65 and older.
- New OBBBA deductions are available for 2025 taxes including no taxes on qualifying tips, overtime, and the ability to deduct car loan interest.
- The phase out level for credits and deductions were increased to account for inflation.
- Tax brackets were also adjusted. The new marginal tax brackets are 10%, 12%, 22%, 24%, 32%, 35%, and 37%.
- The residential clean energy credits will remain through 2032.
The purpose of this guide is to assist readers in understanding the federal credits and deductions available to them, but based on your particular state of residence, there are other benefits you may qualify for that will reduce your state taxes. Here are a few to consider:
- Contributions to 529 education savings plans are often tax deductible, or in some places a credit. This varies state by state, but more than 30 states currently offer a benefit for parents and caregivers. Here’s Monarch’s comprehensive guide to college savings plans.
- Many states also offer specific credits for seniors, veterans, renters, and homeowners who paid property taxes, first time homebuyers, and more. Be sure to do a little research to make sure you’re taking full advantage if you fall into one of those categories.
- Lastly, some states have different standard deduction levels than the federal returns and may allow you to itemize your state return even if you took the standard deduction on your federal return.
It is best to consult with a tax professional who is fluent in your specific state’s tax code to ensure you receive the maximum amount of credits and deductions.
Strategies to Reduce Your Tax Bill
Tax planning requires a bit of forethought, but a smart strategy using available deductions and credits can significantly help you reduce your tax liability. Here are some simple tips to get you started for this next tax season:
Track Expenses Throughout the Year
If you keep your finances organized and tracked throughout the year, tax season will be much smoother next year. Use Monarch’s expense tracking features to automatically categorize and tag deductible expenses as they occur. You can also set up custom tags for things like medical expenses, charitable donations, business expenses, and other transactions that are deductible, and then create saved reports that show you totals and details for each tag. A complete and organized record will then be far easier to grab as next tax season approaches.
Consider Bundling Itemized Deductions
If your itemized deductions are close but slightly below the standard deduction, you may want to consider bunching your deductions into alternating years. For example, if you made two years’ worth of charitable contributions in one year to then exceed the standard deduction total, you could then take the standard deduction the next year. The goal would be to minimize your taxes in this current year.
Maximize Your Retirement Contributions
There are so many benefits to contributing to a tax-advantaged retirement account. First, you’re building your future nest egg and wealth. Secondly, contributions to qualified retirement plans provide an immediate tax impact by lowering your taxable income. This, in turn, may also then lower your AGI to a point where you qualify for other deductions and credits. A win-win all around. If you can work your budget to maximize retirement contributions, your current and future self will thank you.
Plan Your Income and Expenses When Possible
If you are a self-employed person or you have the power to delay receiving portions of your income, you may want to consider deferring income into the next year to decrease your taxable income in the current year, or if the current year’s income was higher than you anticipate for next year, you could do the opposite and speed up the income to take it in the current year. You can also do this with deductible expenses such as business equipment purchases, medical procedures, and so on.
Keep All Documentation and Receipts
Not only is it good practice to keep financial records, but the IRS requires you maintain documentation for all of your credits and deductions for the past three years. Receipts, statements, loan documents, property tax bills, charitable donation letters, etc. are all critically important to make sure you can accurately file your taxes.
This is even more crucial if you are self-employed. You’ll need to track related expenses and mileage accurately. Tools like Monarch can make this process far simpler and automated.
Review and Adjust Your Withholding
If you are receiving a large refund or owe a large amount of money, you may want to adjust your withholding. A large refund essentially means you’ve loaned the government your own money and received no interest in return. There are far better places to save and invest your hard earned dollars.
Conversely, if you owe a large amount in taxes, you may face penalties for underpayment. You can use the IRS’s withholding calculator to adjust your W-4 or make estimated payments to ensure you’re paying just the right amount throughout the year.
Consider Hiring a Qualified Tax Professional
If you have a complex tax situation, which could include owning a business, multiple real estate properties, investment income, or recently had a life event, hiring a licensed tax professional can be well worth your time and money. A good accountant or tax preparer can identify ways in which you can lower your tax liability and keep you in good standing with the IRS.
How to Avoid Common Tax Mistakes
There are a lot of common mistakes that taxpayers make each year that are completely avoidable. Here are a few items you should look out for as you prepare your tax return this season:
- Do not itemize if the standard deduction is higher than your itemized total. If you believe the amounts might be close, be sure to calculate both totals before making a decision.
- Don’t miss any above-the-line deductions you are eligible to take. Again, even if you choose the standard deduction, you can still take above-the-line deductions as well. These include student loan interest, educator expenses, and contributions to IRAs and HSAs, as well as the new OBBBA deductions.
- Remember to claim the new OBBBA deductions including tips, overtime, and personal car loan interest if you are eligible.
- Do not forget to report all of your income. Do not hide or accidentally omit income. The IRS receives copies of all 1099 forms filed by companies, who are required to send them out to anyone they paid more than $600 in a given year. Income omissions are illegal.
- Don’t forget to keep good documentation. If you are audited it is your responsibility to prove your case. It is best practice to keep documentation for a minimum of three years, but up to seven in certain circumstances.
- Do not attempt to claim personal expenses as business expenses. Your business expenses need to be necessary for the business and legitimate. Again, be sure to keep receipts and documents.
- If you are eligible for an education credit, remember that you can only claim one of them.
- For those who are 65 or older this year, don’t leave extra money on the table! Claim your additional $6,000 deduction.
- Don’t file your tax return until you’ve collected all of your tax documents. Often people file their taxes and then receive another form. This then results in having to file an amended return which can cost more money, create more stress, and even delay your refund.
Let Monarch Assist in Your Tax Season Preparation
Now that you understand all of the deductions and credits available in the 2025 tax season, you’re far more prepared to optimize your tax return and maximize savings. Whether you file the taxes yourself or hire a professional, you’ll be able to put this knowledge to use.
As you complete your taxes and begin thinking about next year, get a head start and let Monarch assist you in making future tax seasons that much smoother. Monarch can provide your finances infrastructure to track deductible expenses, categorize these transactions easily and automatically, and monitor the overall health of your money all in one easy to use platform. Monarch’s budgeting and goals features can also help you set aside money for estimated tax payments.
The Final Checklist
Before you submit your tax return, it’s a good idea to take one last look to make sure your i’s are dotted and t’s are crossed. Ask yourself the following questions:
- Did you calculate your itemized deductions versus the standard deduction to ensure you are making the correct choice?
- If you are 65 or older, did you claim the additional $6,000 deduction?
- Did you review and make sure you’ve claimed all the above-the-line deductions you’re qualified for?
- If you work for tips or earned overtime pay, did you claim them? (Remember they need to be reported on your W-2).
- If you qualify for the car loan interest deduction, did you remember to claim it?
- Have you reviewed and claimed all the available tax credits including education, energy, and dependent care?
- Did you remember to report your qualified retirement contributions to reduce your AGI?
- Did you review your tax return for accuracy and completeness?
You don’t have to let tax season become an annual stress and anxiety-filled tradition. If you stay up to date on the credits and deductions available to you and use tools like Monarch to make tracking your finances easy, you’ll move through subsequent tax years with confidence and hopefully more money in your pocket.
Before next tax season, be sure to review our year end financial checklist.
FAQs
What’s the difference between tax credits and deductions?
A credit reduces your tax bill dollar-for-dollar. A tax deduction reduces your taxable income. The simplest example is if you’re eligible for a credit worth $1,000, and you owe $1,000, the credit would reduce the amount of taxes you owe to $0. However, a tax deduction reduces your taxable income, not your tax bill directly. A lower taxable income generally means you’ll owe less, but overall, credits are more impactful as they directly lower your liability.
What is the standard deduction for 2025?
For the 2025 tax season, the standard deduction has been increased to account for inflation. For single filers, the deduction is $15,750. For those married filing jointly it is $31,500. For the married and filing separately folks or heads of household, it is $23,625. There is also an additional $6,000 deduction for seniors 65 years of age and older.
Should I itemize or take the standard deduction?
The vast majority of taxpayers should take the standard deduction. However, if your total itemized deductions are greater than the standard deduction, then you should itemize. Itemized items such as mortgage interest, state and local taxes, charitable donations, and medical expenses should all be tallied to determine the correct deduction for your situation.
What are refundable tax credits?
A refundable tax credit can reduce your liability below zero thus triggering a refund owed to you. For example, if you have children and claim the Child Tax Credit, you might see up to $1,700 returned to you because the credit is partially refundable. A nonrefundable credit can only reduce your tax liability down to zero and will not create a refundable amount owed back to you.
What are the new deductions for this tax season?
With the passing of the OBBBA, there are a few new deductions you should be aware of. The first is the $6,000 additional standard deduction for senior citizens 65 years of age or older. The others are deductions for qualified tips, overtime wages, and personal car loan interest. Please see the above sections for a more detailed explanation of each.
Am I allowed to deduct car loan interest?
Yes, an exciting new update with the OBBBA is the ability to deduct personal car loan interest. The deduction is phased out at higher income levels, but is an above-the-line deduction that tax filers can claim whether they choose the standard deduction or itemize.
How do you maximize tax deductions?
Maximizing deductions requires a bit of forethought, but with tools like Monarch, you’ll be able to easily set up a system for your finances that allows for easy tracking and categorization come next tax season. There are a few simple tips to optimize your taxes. First, track all of your deductible expenses throughout the year. Next, consider bunching itemized deductions into alternating years if your itemized total is close but just under the standard deduction. Try to maximize your retirement account contributions to reduce your AGI. Defer income and expenses strategically if you are able. Always keep detailed documentation and receipts. Don’t forget about the new OBBBA deductions if they are applicable to you. If you have children, consider contributing to a 529 plan, particularly if your state offers a tax benefit. Research and understand your state’s deductions as well. Don’t leave free money on the table!
Can I claim any deductions without receipts?
There are not many deductions you can claim without proof. You can claim the standard deduction without receipts, but for itemized deductions you’ll generally need records and documentation for accuracy and potential audits. Bank and credit card statements are also great ways to back up your claims.
What tax credits can I claim?
The credits you are eligible to claim are entirely dependent upon your personal situation. If you have children you may qualify for the Child Tax Credit. If you are lower to middle income, you may be eligible for the Earned Income Tax Credit. If you pay for childcare or dependent care, you may qualify for that credit as well. Other credits, such as the Saver’s Credit, energy and home improvement credits, Adoption Credit, and Credit for the Elderly and Disabled are all fairly common, but completely based upon each taxpayer’s individual circumstance. Understanding what’s available and applicable to your family is critical.
How do you know if you’re eligible for a tax credit?
Again, every tax credit has specific requirements for eligibility based on your income level, filing status, age, number of dependents, and qualified expenses. Most credits are subject to income phase-outs, where you may only receive a partial credit. Be sure to review the requirements for the credit you’d like to claim as the eligibility specifics may change from year to year.
