Top 22 Tax Deductions and Tax Breaks to Remember in 2024

Tax season is just around the corner, and I know many of us are already dreading the headache of gathering documents and forms. But hey, look at the bright side—taking advantage of the various tax deductions and credits could put some extra cash back in your pocket!

Think of it like a game of “How Low Can You Go?” with your tax bill. By understanding and claiming all the deductions and credits you qualify for, you might end up paying less to Uncle Sam.

In this guide, I’ll break down 22 popular tax deductions and tax breaks that could apply to your situation. From writing off retirement contributions to deducting job-hunting costs, I’ll cover a wide range of potential money-savers. Some might even surprise you.

This article will include:

• A list of key tax deductions and tax breaks for 2024.
• Difference between tax deductions, tax breaks, and tax credits.
• Key FAQs on how deductions work.

Read more:

• How to Set Up a Tax-Efficient Investment Waterfall
• The Mega Backdoor Roth IRA: A Comprehensive Guide
• Leveraging DAFs and QCDs for Tax-Effective Donations

22 Popular Tax Deductions and Tax Breaks

These 22 key tax deductions and credits are a treasure trove of potential savings for the 2024 tax filing season. So, let’s get to the details.

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1. Child Tax Credit (CTC)

The Child Tax Credit (CTC) is a tax break designed to help families with the costs of raising children. If you have a qualifying child under the age of 17, you may be eligible to claim the CTC.

For the 2023 tax year (taxes filed in 2024), the maximum CTC is $2,000 per child, with $1,600 of that potentially being refundable. This means that if your CTC exceeds your tax liability, you could receive a refund for the remaining amount, up to $1,600 per child.

The CTC is subject to income limits, and the amount you can claim phases out as your income increases.

2. Child and Dependent Care Credit (CDCC)

The Child and Dependent Care Credit (CDCC) is designed to help offset the costs of care expenses for qualifying individuals, such as children under 13, a spouse who cannot care for themselves, or other dependents.

This credit lets you claim a percentage of your eligible expenses, up to $3,000 for one dependent or $6,000 for two or more dependents. The percentage ranges from 20% to 35%, depending on your income level.

The CDCC is a valuable tax break for working parents or those caring for qualifying dependents.

3. Adoption Credit

The Adoption Credit is a nonrefundable tax credit that helps taxpayers cover a portion of the qualified expenses related to adopting a child.

For the 2023 tax year, the maximum credit is $15,950 per child. However, the credit begins to phase out for taxpayers with a modified adjusted gross income (MAGI) above $279,230.

This credit can provide significant tax savings for families going through the adoption process, as the costs associated with adoption can be substantial.

4. American Opportunity Tax Credit (AOTC)

The American Opportunity Tax Credit (AOTC) is a valuable tax break for eligible students or their parents who pay qualified education expenses for the first four years of higher education.

The AOTC lets you claim 100% of the first $2,000 spent on tuition, fees, and course materials, plus 25% of the next $2,000, for a maximum credit of $2,500 per student per year.

Up to $1,000 of the AOTC is refundable, meaning you could receive a refund even if you don’t owe any taxes.

5. Lifetime Learning Credit

The Lifetime Learning Credit is a tax credit designed to help offset the costs of higher education for taxpayers or their dependents.

Unlike the AOTC, the Lifetime Learning Credit can be claimed for an unlimited number of years and isn’t limited to just undergraduate education. You can claim 20% of up to $10,000 in qualified education expenses for a maximum credit of $2,000 per tax return.

This credit can be beneficial for folks pursuing professional development or graduate studies.

6. Student Loan Interest Deduction

If you have student loan debt, you may be able to deduct a portion of the interest you paid on your qualified student loans.

For the 2023 tax year (taxes filed in 2024), you can deduct up to $2,500 in student loan interest, even if you don’t itemize deductions. This deduction is subject to income limits, and the amount you can deduct phases out as your income increases.

The student loan interest deduction can provide some relief if you’re struggling with the burden of student loan debt.

7. Mortgage Interest Tax Deduction

The Mortgage Interest Tax Deduction is a valuable tax break for homeowners. If you itemize deductions, you can deduct the interest you paid on your mortgage for your primary residence and a second home.

There are limits on the amount of mortgage debt that qualifies for the deduction, depending on when you took out the loan. This deduction can make homeownership more affordable by reducing your taxable income and, consequently, your tax liability.

8. Energy Efficient Home Improvement Tax Credit

The Energy Efficient Home Improvement Tax Credit is a tax incentive that encourages homeowners to make energy-efficient upgrades to their homes.

Under this credit, you can claim a percentage of the costs incurred for qualifying improvements, such as installing energy-efficient windows, doors, insulation, or heating and cooling systems.

For the 2023 tax year (taxes filed in 2024), you can claim up to $3,200 for eligible improvements. This credit not only helps reduce your tax bill but also promotes energy conservation and environmental sustainability.

9. Local And State Sales/Property Tax Deduction

If you itemize deductions, you may be able to deduct a portion of the state and local taxes you paid during the tax year. This includes either state and local income taxes or state and local sales taxes, but not both.

Additionally, you can deduct real estate taxes on your personal residence and any other properties you own. However, there is a cap of $10,000 ($5,000 if married filing separately) on the combined amount of these deductions.

This deduction can provide tax savings for taxpayers in areas with high state and local tax rates.

10. Earned Income Tax Credit (EITC)

The Earned Income Tax Credit (EITC) is a refundable tax credit that provides financial assistance to low- and moderate-income working individuals and families. The amount of the credit varies depending on your income level and the number of qualifying children you have.

For the 2023 tax year (taxes filed in 2024), the maximum EITC ranges from $600 for taxpayers without children to $7,430 for those with three or more qualifying children.

11. Home Office Expenses

If you use a portion of your home exclusively and regularly for business purposes, you may be able to deduct certain expenses related to the use of that space. These deductions can include a portion of your mortgage interest, utilities, insurance, and other expenses.

To claim the home office deduction, you must meet specific requirements set by the IRS, such as using the space for your trade or business and not using it for personal purposes.

12. Self-Employment Expenses

If you are self-employed, you may be able to deduct various expenses related to your business operations. These deductions can include home office expenses, advertising costs, insurance premiums, professional fees, and other ordinary and necessary expenses incurred in running your business.

By reducing your taxable income through these deductions, you can lower your overall tax liability and improve your business’s profitability.

13. Medical Expenses Deduction

If you itemize deductions, you may be able to deduct a portion of your unreimbursed medical expenses that exceed 7.5% of your adjusted gross income (AGI).

Qualifying medical expenses include payments for healthcare services, prescription drugs, medical equipment, and other necessary medical-related costs.

This deduction can provide relief for those facing significant medical bills, helping to offset some of the financial burden associated with healthcare costs.

14. Health Savings Account (HSA) Contributions

If you have a high-deductible health insurance plan, you may be eligible to contribute to a Health Savings Account (HSA). Contributions to an HSA are tax-deductible, and the funds in the account can be used to pay for qualified medical expenses tax-free.

Additionally, any interest or earnings on the HSA balance aren’t subject to taxation. Contributing to an HSA can be a valuable way to save for future medical expenses while enjoying tax benefits.

15. Saver’s Credit

The Saver’s Credit, also known as the Retirement Savings Contributions Credit, is a tax incentive encouraging low- and moderate-income individuals to save for retirement.

If you contribute to a qualified retirement plan, such as an IRA, 401(k), or 403(b), you may be eligible for a tax credit worth up to 50% of your contributions, depending on your income level.

The maximum credit amount is $2,000 ($4,000 for joint filers). This credit can help make retirement savings more affordable and accessible if you have limited resources.

16. Deduction For 401(k) Contributions

If you contribute to a traditional 401(k) retirement plan through your employer, those contributions are tax-deductible. This means that the amount you contribute is deducted from your taxable income, reducing your overall tax liability.

For the 2023 tax year (taxes filed in 2024), you can contribute up to $22,500 ($30,000 if you’re 50 or older) to a 401(k) plan. By taking advantage of this deduction, you can save for retirement while enjoying immediate tax benefits.

17. Individual Retirement Account (IRA) Contributions

Contributions to a traditional IRA are generally tax-deductible, subject to certain income limits. For the 2023 tax year (taxes filed in 2024), you can deduct up to $6,500 ($7,500 if you’re 50 or older) in IRA contributions from your taxable income.

This deduction can help you save for retirement while reducing your current tax liability. It’s important to note that contributions to a Roth IRA are not tax-deductible, but qualified withdrawals in retirement are tax-free.

18. Electric Vehicle Tax Credit

The Electric Vehicle Tax Credit is a federal incentive that promotes the adoption of environmentally friendly vehicles. If you purchase a qualifying electric vehicle (EV) during the tax year, you may be eligible for a tax credit of up to $7,500.

The credit amount varies based on the vehicle’s battery capacity and the manufacturer’s sales volume. This credit can help offset the higher upfront cost of EVs and encourage more people to embrace eco-friendly transportation options.

19. Solar Tax Credit

The Solar Tax Credit, also known as the Residential Clean Energy Credit, is a tax incentive for homeowners who install solar energy systems in their primary residences.

For the 2023 tax year (taxes filed in 2024), you can claim a credit equal to 30% of the cost of installing solar panels, solar water heaters, or other eligible solar energy equipment.

20. Charitable Contributions Tax Breaks

If you itemize deductions, you can deduct qualifying charitable contributions made to eligible organizations. These contributions can be in the form of cash, property, or out-of-pocket expenses incurred while volunteering.

The IRS lets you deduct up to 60% of your adjusted gross income for cash contributions and up to 30% for contributions of appreciated assets.

By donating to charitable causes, you can not only support organizations that align with your values but also reduce your taxable income and potentially lower your tax bill.

21. Gambling Loss Deduction

Gambling winnings are considered taxable income by the IRS. However, you can offset your gambling winnings by deducting your gambling losses for the same tax year.

To claim this deduction, you must itemize your deductions, and your losses cannot exceed your winnings. It’s important to keep accurate records of your gambling activities, including receipts, tickets, and other documentation, to support your claimed losses.

22. Tax Deductions for Teachers

Teachers and other eligible educators can deduct up to $300 ($600 for married couples filing jointly if both are eligible educators) for unreimbursed expenses related to classroom supplies, books, and other educational materials.

This deduction is available even if you don’t itemize deductions, making it a valuable tax break for educators who often incur out-of-pocket expenses to support their students.

A Breakdown of the Basics

What Is a Tax Deduction and How Do Deductions Work?

A tax deduction is an expense that can be subtracted from your taxable income, thereby reducing the amount of tax you owe. The Internal Revenue Code provides a wide range of tax deductions that you can claim, each with its own set of rules and eligibility criteria.

Standard deductions vs. itemized deductions

When it comes to claiming tax deductions, you have two options: the standard deduction or itemized deductions. You must choose one or the other; you cannot do both.

The standard deduction is a flat-dollar amount that reduces your taxable income without requiring you to itemize specific expenses. The amount of the standard deduction varies based on your filing status and is adjusted annually for inflation.

Itemized deductions, on the other hand, let you deduct specific qualified expenses from your taxable income. These expenses can include mortgage interest, charitable contributions, medical expenses, and more. Itemizing deductions can be more beneficial if the total of your qualified expenses exceeds the standard deduction amount.

Tax Write-Offs Vs. Deductions Vs. Tax Credits

While these terms are often used interchangeably, there are distinct differences between tax write-offs, deductions, and tax credits.

A tax write-off is an umbrella term that encompasses various expenses you can deduct from your taxable income, including deductions and losses, such as investment depreciation.

A tax deduction refers specifically to an expense that reduces your taxable income, thereby lowering the amount of income subject to taxation.

A tax credit, on the other hand, is a dollar-for-dollar reduction in the actual amount of tax you owe. Some tax credits are refundable, meaning you can receive a refund if the credit exceeds your tax liability.

What is a Tax Rebate?

A tax rebate is a situation where a government (federal, state, or local) decreases taxes retroactively and then refunds taxpayers the amount they overpaid under the new tax rules.

Tax rebates are similar to refundable tax credits in that they involve getting money back from the government, but they typically happen automatically, without the taxpayer having to file a return or take any action.

Tax rebates are relatively uncommon at the federal level but are more common among state and local governments as a way to provide tax relief to residents.

Understanding the various tax deductions and tax breaks can potentially save significant amounts of money on your tax bill. However, it’s important to carefully review the eligibility requirements and consult with a tax professional if you have any questions or concerns.

How Can You Claim a Tax Deduction?

The specific process of claiming a deduction will depend on whether you choose the standard deduction or itemize your deductions.

Claiming the standard deduction

• Choose your filing status: This will determine the standard deduction amount you can claim. You can find the current year’s standard deduction amounts on the IRS website or in tax preparation software.
• Fill out your tax return form: Most tax forms will have a section dedicated to claiming the standard deduction. Simply check the box or enter the appropriate amount based on your filing status.

Itemizing deductions

• Gather your documentation: Keep all receipts, invoices, and other documents throughout the year that prove your eligible expenses. These could include documents for mortgage interest, charitable donations, medical expenses, etc.
• Complete Schedule A: This is a separate form attached to your tax return where you will list all your itemized deductions with their corresponding amounts.
• Compare your itemized deductions to the standard deduction: Use tax software or consult a tax professional to determine which option (standard deduction or itemizing) will result in a lower taxable income for you.

Additional tips to remember

• Keep good records: It’s crucial to maintain organized records of your expenses for at least three years in case of an IRS audit.
• Consult a tax professional: If you have any questions or uncertainties about claiming deductions, it’s always best to seek guidance from a qualified professional. They can help you determine your eligibility, maximize your deductions, and ensure you’re filing your taxes correctly.

Remember, tax laws can be complex, and this information shouldn’t be considered a substitute for professional tax advice.

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