Getting the hang of taxes is a challenging feat in and of itself, but the ever-changing guidelines from the IRS make it feel downright impossible sometimes. And because the rules are constantly changing, it can be hard to determine which tax write-offs you qualify for. So, in the interest of helping you save big time, we’ve rounded up the 15 tax write-offs you should know about this year. Use this as a starting point to conduct your research and determine what you qualify for, and talk to a tax professional if you have any questions about eligibility. Keep scrolling to learn more.
If you’re a student or pay student loans…
American Opportunity Tax Credit
Designed specifically for undergraduate college students, the American Opportunity Tax Credit (AOTC) lets eligible students or their caregivers claim a credit for expenses paid for the first four years of college. With this credit, you can claim up to $2,500 spent on things such as tuition, books, course-related materials, and so forth. Of course, the amount you receive is determined by your income and filing status, but this credit lowers your tax bill dollar-for-dollar by directly reducing the amount you owe. Plus, this credit is also refundable, so if this credit brings the amount you owe to zero, you can have 40 percent of the remaining credit refunded to you, up to $1,000.
Lifetime Learning Credit
Similar to the AOTC, the lifetime learning credit (LLC) is another education credit that lets taxpayers directly lower the amount they owe by up to $2,000 to help offset the cost of higher learning. In contrast to the AOTC, however, the LLC is non-refundable. But while you won’t earn anything back, you can use this credit toward what you owe. Plus, you can also claim this credit year after year without a cap, and unlike the AOTC, the LLC works for students enrolled in undergraduate, graduate, and professional courses. Just keep in mind that you can’t claim more than one education credit per tax season, so talk to a professional to find which option is best for you.
Student Loan Interest Deduction
In contrast to a tax credit, a tax deduction reduces how much of your income is subject to taxes. With the student loan interest deduction, you can subtract up to $2,500 of interest paid on qualifying student loans from your taxable income. While you can claim this deduction directly on Form 1040, there are quite a few qualifying factors you must have, like having paid interest on a qualifying student loan, being legally obligated to pay interest on a qualifying loan, and filing separately from your spouse if you’re married. If you’re unsure of whether you qualify, consider talking to a professional for expert guidance.
If you’re self-employed…
Qualified Business Income Deduction
If you’re a self-employed small-business owner, this one’s for you. With the qualified business income deduction, qualifying small-business owners can deduct up to 20 percent of qualified business income (QBI) on their taxes. To qualify, you must have “pass-through income”—AKA business income you report on your personal taxes. Likewise, while earning $182,100 or less as a single filer or $364,200 or less as a joint filer will likely get you the full reduction, there are other ways to earn this credit, even if it’s not the full amount. To determine whether you qualify, consider talking to a tax expert.
Home Office Expenses
If you’re self-employed and working from home, this is for you. With this write-off, you deduct a portion of your mortgage or rent, utilities (think: internet or heating), office supplies (like a printer and paper), repairs and maintenance, and more from your taxes. Typically, these expenses will be deducted on Form 1040. To determine how much you can deduct, you can multiply the cost of running your home by the percentage of it devoted to work or business use, deduct $5 for every square space used for work, or talk to a tax pro.
Self-Employed Health Insurance Deduction
It’s no secret that paying health insurance premiums out of pocket costs a pretty penny, which is why you should consider deducting it from your taxes if you’re eligible. To qualify for this deduction, you must pay for insurance for yourself, your spouse, dependents, and children under the age of 27. Likewise, you must also be ineligible to receive an employee-sponsored subsidized health plan through your employer or your spouse’s.
Self-Employment Taxes
Yes, you read that right: Self-employment taxes can be deducted as a business expense. As of right now, the self-employment tax rate is 15.3 percent of your net earnings, and this figure accounts for the total sum of the 12.4 percent Social Security tax and 2.4 percent Medicare tax. And according to NerdWallet, those who are self-employed can deduct half of their self-employment tax on their income taxes.
Business Travel, Meals, and Entertainment
Sometimes, part of being your own boss means traveling and wooing clients and peers, and more often than not, the cost of these activities comes directly out of your own pocket. This is why the IRS offers deductions for business meals and travel-related expenses. Travel-related expenses include things like plane, train, or bus tickets, rental car costs, baggage fees, and laundry and dry cleaning during your trip. Likewise, business meals with clients and a few employees and office snacks are 50 percent deductible, while company-wide parties and food included as taxable compensation on a W-2 are 100 percent deductible. To keep track of your business expenses, save receipts for business-related expenses and keep an itemized list throughout the year.
If you own a home…
Mortgage Interest Deduction
Being a homeowner is something to be proud of, and to offset the cost of taxes owed on your home, homeowners can look into getting a mortgage interest deduction as one of their tax write-offs. Essentially, this allows you to deduct the amount you paid for the interest on your mortgage from your taxable income. For 2023, you can deduct the interest from the first $750,000 paid on your mortgage debt for your primary or secondary home.
If you have kids…
Child Tax Credit
Raising a child is no easy feat, and it costs a lot of money. However, with the child tax credit, parents who earn $200,000 or less and have a child or children under the age of 17 can earn a $2,000 credit per qualifying child. The goal of this credit is to help lower the amount of total taxes owed on a dollar-for-dollar basis, which is better than a deduction because it offers you a chance to save more.
Child and Dependent Care Credit
Unlike the child tax credit, the child and dependent care credit (CTCC) is a tax credit for taxpayers who pay for care for a child under the age of 13 or a disabled dependent, like a physically or mentally incapacitated spouse or family member who’s incapable of caring for themselves; qualifying care includes daycare, babysitters, nurses and aides, before-and-after-school programs, and preschool. In essence, this credit helps those paying for care out-of-pocket while working or looking for work by lowering taxes on a dollar-for-dollar basis. And like all write-offs, the credit you receive will depend on your filing status and income.
Write-offs for everyone to consider…
Retirement Savings Contribution Credit
Aptly called the “saver’s credit,” the retirement savings contribution credit offers a tax credit to low and moderate-income individuals who contributed to a 401(k), traditional IRA, or other employee-sponsored retirement plan throughout the year. While there’s no limit to what you can contribute to your retirement fund, you can only claim and earn credit for contributions up to $1,000, or $2,000 if you’re filing jointly, and depending on your adjusted gross income (AGI), you may receive a credit worth 50, 20, or 10 percent of this maximum contribution. To find out if you’re eligible to claim this credit or get an idea of the amount you might get, check out this IRS chart calculator.
Charitable Donation Deduction
While helping others is best when it comes from the goodness of your heart, it does offer good karma come tax season when you’re considering what tax write-offs you qualify for. With this deduction, you can itemize gifts or money donated to a tax-exempt organization, like a church or Salvation Army, and earn a deduction on your taxes. Generally speaking, the charitable donation deduction allows you to deduct up to 60 percent of your AGI; however, that amount may vary depending on the organization(s) you donated to.
Earned Income Tax Credit
The earned income tax credit (EITC) is a refundable tax credit designed to help supplement the income of low-income taxpayers and offset the effect of Social Security taxes. This credit is available only to those with low or moderate income who don’t receive money from investments beyond a certain level, regardless of whether they have qualifying dependents. There are quite a few rules for qualification for this one, so do your due diligence to determine if you qualify for this as one of your tax write-offs.
Medical Expenses
Medical expenses are notoriously known for their ability to rack up a bill in a blink, but unreimbursed medical fees for the year may be subject to a tax deduction. For 2023, you can deduct medical expenses that exceed 7.5 percent of your AGI. So, if your AGI is $50,000 and you have $10,000 in outstanding medical bills, you’d multiply $50,000 by 0.075 (7.5 percent) to determine that you’d be able to deduct expenses that exceed $3,750, which means you’d be able to deduct $6,250’ worth of medical expenses.
