Also, note that some states might use the term standard deduction differently, or offer credits in lieu of deductions. Always ensure you’re looking at the right figures for your situation. Understanding your state’s approach can help you make the best decision when choosing between standard and itemizing on the state return.
Yes, you’re on the hook for taxes on gambling winnings, but if the slots, cards, or lotteries weren’t in your favor at other times, you can deduct losses up to the amount that you won from gambling. Unfortunately, you won’t be able to deduct your losses, but at least you’ll have no extra taxable income. You’ll just need to be that person in the casino asking for receipts. Monetary donations to qualified nonprofit organizations can be tax-deductible, depending on your income. Other donations could include home goods, books, old cars, even stocks and bonds, but income limits might differ when you donate assets instead of cash. You could claim 2 different tax credits for energy-efficient home upgrades.
- To claim these medical expenses as a deduction on your return, they’ll need to exceed 7.5% of your taxable income.
- Before the passage of TCJA, taxpayers claimed a larger deduction on their tax returns by itemizing.
- The list of expenses that can be itemized is extensive and can include some medical expenses, mortgage interest, charitable contributions, and state and local taxes.
- Lucy Lazarony is an experienced personal finance journalist and writer who got her start in 1998 writing about financial topics.
- The current version of the child tax credit (not to be confused with the child and dependent care credit) is set to expire at the end of 2025.
- If you lost more than you gained in a year, you may deduct up to $3,000 ($1,500 if you’re married filing separately) from your ordinary income too.
Contribute to a Health Savings Account
This federal tax break lets you claim 30 percent of the cost for installing qualifying clean energy systems, such as solar panels, solar water heaters, wind turbines and geothermal heat pumps, with no maximum limit. If you have a high deductible health plan (HDHP), you can contribute to a health savings account (HSA) and reap major tax benefits. There’s no lifetime dollar limit for this credit — you can claim the maximum amount for each year in which you make eligible improvements until 2033. Starting in 2025, you’ll have to prove the property is from a qualified manufacturer.
A Health Savings Account (HSA) is an account for pre-taxed money that is saved for medical expenses. For 2024, the contribution limits were $4,150 if you were covered by an individual health plan, or $8,300 if you were covered by a family plan. These amounts increase in 2025 to $4,300 for individual coverage and $8,550 for family coverage. If you’re 55 or older, you can contribute an additional $1,000 per year. Depending on whether you itemize or take the standard deduction, here are 11 tax breaks that could potentially decrease your final tax bill or increase your refund. Just remember, many deductions and credits have eligibility requirements based on your income, filing status, and other factors, so review IRS guidelines and consult with a tax advisor on your personal situation.
What is a tax credit?
In other words, the 2024–2025 period is the tail end of these expanded deduction amounts under current law. The credit gives back a maximum of 20 percent of the first $10,000 spent on tuition, fees, and eligible courses for undergraduate, graduate or professional studies — even classes to sharpen job skills. There’s no limit to how many years you can claim it, but it phases out if your modified AGI is above $80,000 (single) or $160,000 (joint).
A tax credit is an amount that can be subtracted directly from your tax bill or, in some cases, added to your tax refund. For example, if you have a $1,000 bill and claim a $250 credit, you owe $750. Staying aware of these pitfalls can save you a headache, an IRS notice, or missing out on a deduction you deserve. When in doubt, consult IRS Publication 936 (Home Mortgage Interest Deduction), which offers detailed guidance and worksheets for things like the interest limitations, or seek advice from a tax professional. It’s worth noting that the current high standard deductions are a result of the Tax Cuts and Jobs Act (TCJA) of 2017, which roughly doubled the standard deduction starting in 2018.
Business credits
In these cases, the interest is not deducted on Schedule A and you do not need to itemize to get the benefit. It’s deducted “above the line” as part of calculating business profit. So even taxpayers who take the standard deduction for their personal taxes can still deduct mortgage interest related to a business or rental.
Does the Standard Deduction Reduce Taxable Income? – Avoid This Mistake + FAQs
For 2024, the amount of your student loan interest deduction is gradually reduced (phased out) if your MAGI is between $80,000 and $95,000 ($165,000 and $195,000 if you file a joint return). You can’t claim the deduction if your MAGI is $95,000 or more ($195,000 or more if you file a joint return). However, this deduction is not automatic for everyone; you must itemize deductions on your tax return (Schedule A of Form 1040) to claim it.
Charitable contributions tax deduction
Remember that tax laws are subject to change, so it’s advisable to consult with a tax professional or financial advisor to ensure you’re maximizing your AGI-reduction strategies within the current tax code. The decision depends on which deduction type garners the lowest tax liability. If you file as a single taxpayer or are married and filing separately, you will fare better with the standard deduction of $14,600 for 2024 and $15,000 for 2025 if your itemized deductions total less than that amount.
Think of QBI as a special business-related deduction available on top of your standard deduction (if you qualify). “The Qualified Business Income (QBI) deduction is one of the biggest deductions for small businesses,” says Kelson. This allows eligible self-employed taxpayers to reduce their taxable income by up to 20% of their qualified business earnings. For single taxpayers and those who are married but filing separately, the standard deduction is $14,600 in 2024 and $15,000 in 2025. For heads of households, the standard deduction is $21,900 in 2024 and $22,500 in 2025.
All content on this website, including dictionary, thesaurus, literature, geography, and other reference data is for informational purposes only. This information should not be considered complete, up to date, and is not intended to be used in place of a visit, consultation, or advice of a legal, medical, or any other professional. This IRS fact sheet has more details on the energy efficient home improvement credit and the residential clean energy credit.
- The IRS is also more likely to audit returns that itemize, particularly if the deductions appear unusually high compared to the taxpayer’s income.
- For example, if you have a $1,000 bill and claim a $250 credit, you owe $750.
- In 2025, the annual contribution limit for an HSA is $4,300 (up from $4,150 in 2024) and $8,550 for families (up from $8,300 in 2024).
- However, there are a number of ways to reduce your AGI and lower your tax liability in a given year.
State Standard Deductions: Different Rules in Different States 🏛️
With TurboTax Live Full Service, a local expert matched to your unique situation will do your taxes for you start to finish. Or get unlimited help and advice from tax experts while you do your taxes with TurboTax Live Assisted. And if you want to file your own taxes, TurboTax will guide you step by step so you can feel confident they’ll be done right. No matter which way you file, we guarantee 100% accuracy and your maximum refund.Get started now by logging into TurboTax and file with confidence. If both you and your spouse are not covered by a retirement plan at work, you can deduct your contribution as long as you earn income during the year.
They are computed on the Internal Revenue Service’s Schedule A, and the total is carried over to the 1040 form. When itemized deductions how to reduce your tax bill with itemized deductions have been subtracted, the remainder is the actual taxable income. You may also qualify for 2 education-related tax credits, though both have income limits.