You may be able to lower your tax bill by claiming tax deductions or credits. These two tax breaks can offer significant savings, and some tax credits might even increase your refund.
Tax software or a tax preparer will generally ask questions and guide you through claiming all the credits and deductions you can. But knowing about the options can be helpful so you don't miss one and pay more taxes than necessary.
What Is a Tax Deduction?
A tax deduction—sometimes called a tax write-off—reduces your taxable income, potentially lowering the amount of taxes you owe. There are three main types of tax deductions:
- The standard deduction. A flat-rate deduction that's based on your filing status (e.g., single, married filing jointly, etc.). Additional amounts may apply based on age, blindness or whether someone else can claim you as a dependent.
- Itemized deductions. Deductions you can claim instead of claiming the standard deduction.
- Above-the-line deductions. Deductions you can claim even if you claim the standard deduction.
The standard deduction often changes each year, but for 2024 it is:
- $14,600 for single or married filing separately
- $29,200 for married filing jointly or qualifying surviving spouse
- $21,900 for head of household
There are additional amounts if you're 65 or older or considered blind.
You can claim either the standard deduction or itemized tax deductions, and you can use whichever method leads to paying less taxes.
What Is a Tax Credit?
A tax credit directly reduces the amount of tax you owe, rather than lowering your taxable income. Tax credits primarily come in two forms: refundable and nonrefundable.
- A refundable tax credit can lower your taxes and increase your tax return.
- A nonrefundable credit can lower your taxes to zero, but you won't get any leftover amount as a refund. If the credit is more than what you owe, you might lose the extra or carry it over to the next year, depending on the rules.
Tax Deduction Versus Tax Credit
In general, a tax credit is more valuable than a tax deduction because tax credits provide dollar-for-dollar savings, while tax deductions only reduce your taxable income.
Here's an example: Say you owe $5,000 because you have $41,667 in taxable income and are in the 12% tax bracket. If you can claim a $500 tax credit, you'd only have to pay $4,500. If you claim a $500 tax deduction, your taxable income gets reduced to $41,167, which only reduces your tax bill by $60 (500 x .12 = 60).
READ MORE: Tax Credits vs Deductions: Key Differences and Similarities
Top Tax Credits and Deductions
Now that you have the basics on tax credits and deductions, here's more information about some of the most popular tax credits and deductions, including:
- Child tax credit
- Earned income tax credit
- Energy-efficient home improvement credit
- Retirement contributions
- HSA contributions
- Student loan interest deduction
- Educator expense deduction
- Mortgage interest deduction
- State and local taxes
- Medical and dental expenses
- Charitable contributions
1. Child tax credit (partially refundable tax credit)
If you're supporting a child, you might qualify for the Child Tax Credit (CTC). Eligible children can include your biological or adopted children, stepchildren, siblings, nieces, nephews or their children, as long as they meet IRS criteria. To qualify:
- You must claim the child as a dependent.
- The child must be 17 years old or younger at the end of the year.
- The child must have lived with you for at least half of the year.
In 2024, the credit could be worth up to $2,000 per child, depending on your income. Although the CTC isn't fully refundable, it's paired with the refundable Additional Child Tax Credit (ACTC), which may effectively allow you to get a refund for up to $1,700 per child.
2. Earned income tax credit (refundable tax credit)
The Earned Income Tax Credit (EITC) is a refundable credit designed to benefit low-to-moderate-income households. In 2024, the credit can range from $632 to $7,830 depending on your income, the number of qualifying children and your tax filing status. For the 2025 tax year, the EITC can range from $649 to $8,046.
3. Energy-efficient home improvement credit (nonrefundable tax credit)
The Energy-Efficient Home Improvement Credit helps offset the cost of certain home improvements made from 2023 to 2032. The credit can be worth up to 30% of your eligible expenses, but there are specific limits depending on the type of improvement. For example, you can claim:
- Up to $1,200 for energy-efficient property costs and home improvements, with specific limits on exterior doors (up to $250 per door; $500 total), exterior windows and skylights (up to $600) and a home energy audit (up to $150).
- Up to $2,000 for qualifying heat pumps, water heaters, biomass stoves or biomass boilers.
These limits are annual, so you can spread out your projects over multiple years and claim the credit each year, as long as the improvements qualify.
4. Retirement contributions (above-the-line deduction)
You may be able to deduct contributions you make toward traditional retirement accounts.
For 2024, you can deduct up to $23,000 in contributions to eligible employer-sponsored retirement plans, such as a 401(k) or 403(b). If you're 50 or older, you can contribute an additional $7,500, for a total deduction of $30,500. For 2025, you can deduct up to $23,500 in contributions; employees ages 60 to 63 can contribute an additional $11,250, for a total deduction of $34,750.
If you and your spouse don't have a retirement plan at work, you can deduct the lesser of your taxable compensation or $7,000 ($8,000 if you're 50 or older) for individual retirement account (IRA) contributions. These amounts will stay the same in 2025.
If you or your spouse are covered by a plan at work, the deductible amount of your IRA contributions will depend on your tax filing status and your modified adjustable gross income for the year.
You can open and contribute to an IRA up until the tax filing deadline, meaning you can make 2024 contributions until April 15, 2025.
5. HSA contributions (above-the-line deduction)
Health savings accounts (HSAs) are tax-advantaged savings accounts that allow you to save and invest money for medical expenses.
For 2024, you can contribute up to $4,150 for an individual HSA or $8,300 for a family account. If you're 55 or older, you can contribute an additional $1,000 (making the total $5,150 for individuals and $9,300 for families). The contribution limits increase in 2025 to $4,300 for individuals and $8,550 for families, with an additional $1,000 catch-up contribution for those 55 or older.
You can make these deductions until the tax filing deadline for the year.
6. Student loan interest deduction (above-the-line deduction)
You may qualify for the student loan interest deduction if you paid interest on qualifying student loans. To qualify, you must meet the following conditions:
- You don't file as married filing separately.
- You can't be claimed as a dependent.
- Your modified adjusted gross income is under the income limit for the tax year.
If you qualify, you can deduct up to $2,500 in interest payments on student loans for yourself, a spouse or someone who was your dependent when you got the loan.
7. Educator expense deduction (above-the-line deduction)
If you're a K-12 educator, you can deduct up to $300 in out-of-pocket expenses for classroom materials, including books, supplies, computer equipment and other items. To qualify, you must be a teacher, instructor, counselor, principal or aide, and you need to work at least 900 hours during the school year. If you and your spouse are both educators and file jointly, each of you can deduct up to $300, for a total of $600.
8. Mortgage interest deduction (itemized deduction)
Homeowners may be able to deduct the interest they pay on mortgages for their primary home and a secondary home.
If you bought your home after December 15, 2017, you may be limited to deducting interest on up to $750,000 of mortgage debt ($375,000 if married and filing separately). However, if you bought your home before December 16, 2017, a higher limit of $1 million ($500,000 if married and filing separately) applies.
9. State and local taxes (itemized deduction)
You can deduct property taxes, plus either state and local income taxes or sales taxes. These deductions are collectively called SALT taxes. However, there is a cap: The total deduction for SALT taxes is limited to $10,000 ($5,000 if married and filing separately).
10. Medical and dental expenses (itemized deduction)
You may be able to deduct unreimbursed medical and dental expenses you paid for yourself, your spouse or your dependents. However, you can only claim these deductions if the total amount of your expenses exceeds 7.5% of your adjusted gross income. The IRS provides a list of qualifying expenses, which can include premiums, copays, insulin, prescription medicine and more.
11. Charitable contributions (itemized deduction)
You can deduct charitable contributions to qualified organizations, which generally means registered 501(c)(3) organizations. The deduction applies to the value of your donations, whether in the form of cash, investments, clothing or other assets. However, you generally can't deduct more than 60% of your adjusted gross income in a given year. Additionally, you must subtract the fair market value of any goods or services you receive in exchange for your donation.
Use Your Tax Knowledge To Save
Claiming all the tax credits and deductions for which you qualify can help free up money to put toward your financial goals. You can also use your knowledge of these tax breaks to make educated decisions throughout the year.
You might consider opening and contributing to an IRA CD to get a tax break this year and save for your future. Or you could make a few energy-efficient home improvements each year to stay under the annual tax credit limits and increase your total tax savings.
READ MORE: How Does Investing Money Affect Your Taxes?
