Taxes can be daunting, but the good news is that there are several tax benefits designed to help you save money. The complex forms, confusing terminology, and endless paperwork can make tax season overwhelming, but understanding these benefits can significantly reduce your tax burden. Whether you’re a homeowner looking to maximize deductions, a parent seeking credits for your kids, or someone just starting out on your financial journey, these benefits can make a noticeable difference in how much you owe — or how much you get back.
By taking the time to familiarize yourself with the right credits and deductions, you can lower your tax bill and possibly even receive a refund. Knowledge is key when it comes to taxes, and knowing which benefits apply to you can translate into substantial savings. So, before you file, take a moment to explore some of the most common and accessible tax benefits available to most people.
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1. The Earned Income Tax Credit helps low to moderate-income workers reduce their tax burden.
The Earned Income Tax Credit is a benefit for low to moderate-income workers, particularly those with children. This credit can reduce the amount of tax you owe and may even result in a refund. The amount you can claim depends on your income, filing status, and the number of qualifying children you have.
- Who qualifies? Single or married individuals who earn less than a certain threshold, with a higher income limit for those with children.
- How much? The credit can be worth up to $7,000 for families with three or more children.
- How to claim? You must file a tax return, even if you owe no tax or aren’t required to file, and complete Schedule EIC.
2. The Child Tax Credit provides financial relief to parents or guardians with children under 18.
If you have children under 18, the Child Tax Credit is another valuable benefit. This credit directly reduces your tax bill and is partially refundable, meaning you could receive money back even if you owe no taxes.
- Who qualifies? Parents or guardians with children under 18 who meet income requirements.
- How much? The credit is up to $2,000 per child, with $1,600 potentially refundable for each qualifying child.
- How to claim? File Form 1040 or 1040-SR and complete the Child Tax Credit section.
3. The Retirement Savings Contributions Credit encourages saving for retirement by offering a tax credit.
The Saver’s Credit encourages low to moderate-income taxpayers to save for retirement by offering a credit based on your contributions to a retirement plan like an IRA or 401(k).
- Who qualifies? Individuals earning under $36,500 or married couples earning under $73,000.
- How much? The credit is worth up to 50% of your contributions, with a maximum of $2,000 ($4,000 for married couples).
- How to claim? Complete Form 8880 and include it with your tax return.
4. The American Opportunity Tax Credit and Lifetime Learning Credit reduce education costs through tax relief.
These credits are designed to offset the cost of higher education by providing tax relief for tuition, fees, and course materials.
American Opportunity Tax Credit (AOTC)
- Up to $2,500 per student for the first four years of college.
- 40% of the credit is refundable.
Lifetime Learning Credit (LLC)
- Up to $2,000 per tax return for tuition and fees, available for an unlimited number of years.
- Not refundable but can reduce your tax liability.
5. The Mortgage Interest Deduction allows homeowners to reduce taxable income by deducting mortgage interest.
Homeowners can deduct the interest paid on their mortgage from their taxable income. This benefit is particularly valuable in the early years of a mortgage when interest payments are highest.
- Who qualifies? Homeowners who itemize deductions on their tax returns.
- How much? Deduct interest paid on mortgages up to $750,000 ($1 million if the mortgage was taken out before December 15, 2017).
- How to claim? Itemize deductions on Schedule A of your tax return.
6. The State and Local Tax Deduction lets taxpayers reduce their federal tax bill by deducting state and local taxes.
This deduction allows taxpayers to deduct up to $10,000 of state and local taxes paid, including property taxes and state income or sales taxes.
- Who qualifies? Taxpayers who itemize deductions.
- How much? Up to $10,000.
- How to claim? Itemize deductions on Schedule A of your tax return.
7. The Medical Expense Deduction offers relief for those with significant unreimbursed medical costs.
If your unreimbursed medical expenses exceed 7.5% of your adjusted gross income, you may be able to deduct them. This can include everything from doctor visits to prescription medications and even some insurance premiums.
- Who qualifies? Taxpayers with significant medical expenses who itemize deductions.
- How much? The deduction is for expenses exceeding 7.5% of your AGI.
- How to claim? Itemize deductions on Schedule A of your tax return.
