10 Popular Tax Deductions and Tax Credits for 2023
A deduction reduces your taxable income, which could result in a decreased tax burden. A credit directly lowers your tax obligation. For 2023, tax credits and deductions, often referred to as tax write-offs, can save you a ton of money. Especially if you know what they are, how they operate, and how to apply for them.
Tax deductions and tax credits are the two main divisions of tax advantages. Knowing the variations in how tax savings can operate is a smart idea when you investigate programs that might apply to you.
In other words, a credit reduces your tax liability by the same amount. A tax write-off gives you the option to subtract a certain amount from your taxable income, which has a marginally reduced advantage. Another thing to keep in mind about tax deductions is that they won’t help you much until you itemize them, which is only advantageous for those who have a sizable amount of deductible expenses.
There are hundreds of itemized deductions and tax credits available for 2023, whether you file your taxes on time or not. Here are 10 well-known tax breaks along with links to our other articles so you may learn more.
1. Children’s Tax Credit
You could get up to $2,000 per child under the child tax credit (CTC), with up to $1,500 of that amount possibly being refundable.
2. Credit for Child and Dependent Care
For a kid under the age of 13, a spouse or parent who is unable to care for themselves. Or another dependant, the child, and dependent care credit, or CDCC, is designed to pay a portion of daycare and comparable expenditures so you may work. Typically, it’s up to 35% of expenses totaling $3,000 for a single dependent or $6,000 for two or more.
3. U.S. Opportunity Tax Credit
The American Opportunity Tax Credit, often known as the AOC, allows you to deduct all of the first $2,000 you spend on tuition, books, equipment, and school fees. As well as 25% of the following $2,000, for a total deduction of $2,500. However, living expenses and transportation are not eligible.
4. Credit for Lifelong Learning
You can deduct a maximum of $2,000 from the lifetime learning credit, which is 20% of the first $10,000 you spent on tuition and fees. The lifelong learning credit does not consider living expenditures or transportation to be eligible expenses, just like the American Opportunity tax credit. Books or other supplies required for the coursework may be claimed.
5. Deduction for Interest on Student Loans
Borrowers who paid interest on their student loans can deduct up to $2,500 from their taxable income thanks to the student loan interest deduction.
6. Credit for Adoption
The adoption costs per child up to $14,890 are covered by this item. When your 2022 modified adjusted gross income surpasses $263,410, the credit phases out and starts to gradually drop at certain income levels.
7. Earned Income Tax Credit
Depending on your income, marital status, the number of children you have, and how many kids you have, you might receive between $560 and $6,935 from this earned income tax credit, or EITC. If your AGI is less than roughly $59,000, you should consider it.
8. Deduction for Charitable Contributions
If you itemize, you might be able to deduct the value of your charitable contributions from your taxable income. Whether they are made in cash or in-kind items like clothing or a car. You may typically deduct up to 60% of your adjusted gross income, according to the IRS.
9. Deduction for Medical Costs
In general, eligible, unreimbursed medical costs that exceed 7.5% of your adjusted gross income for the tax year are deductible.
10. State and Local Tax Deduction
For a combination of property taxes plus either state and local income taxes or sales taxes, you are allowed a deduction of up to $10,000 ($5,000 if you’re married and filing separately).
If you have any more questions, contact our experts at Your Part Time Accountant.