The IRS allows numerous deductions and certain credits to help taxpayers. Take full advantage of those for which you are eligible.
A tax deduction is an expense you can subtract from your gross income if you itemize, resulting in a lower taxable income.
Common tax deductions include:
- An exemption amount for you, your spouse, each child, and any other qualified dependents, and certain disabilities
- Mortgage interest paid on your primary residence
- Home equity loan or line of credit interest
- Charitable contributions to eligible organizations
- Certain business expenses
- Union and professional dues
- Some medical expenses
- Cost of tax advice, software, and books
- Depreciation of business assets
- Some work uniforms and clothing
- Moving expenses, in some cases
- Some educational expenses
- A tax credit is a dollar-for-dollar reduction in what you would owe for taxes.
Common examples of tax credits are:
- Earned income credit. Reduces the tax burden for lower-income taxpayers.
- Education-related credits. The Hopecredit can be used for the expenses you incur in the first two years of college. The Lifetime Learning credit applies to tuition costs for undergraduates, graduates, and those improving job skills through a training program.
- Child-related credits. These include credit for child and dependent care expenses, the child tax credit, and the adoption credit.