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Top 20 federal income tax deductions and credits

Rick Wagner • Nov 8, 2019 at 12:00 AM

Of hundreds of potential federal income tax deductions and credits for individuals that can be dizzying, it may take a tax preparation professional or the Internal Revenue Service to guide you through them. For guidance, go to the irs.gov website or consult a local tax professional. (None are quoted here because at deadline all contacted were preparing returns for the Oct. 15 deadline for 2018 tax filing extensions.)

Other online sources include TurboTax at https://turbotax.intuit.com and of course the primary source, the IRS website at irs.gov. That being said, here’s a list of 20 popular and common ones and short explanations adopted from a Nerd Wallet article by Tina Orem at nerdwallet.com. 

HOW DOES IT PAY TO LEARN?

1. Student loan interest deduction: Deduct up to $2,500 from your taxable income if you paid interest on your student loans. 

2. American Opportunity Tax Credit: This lets you claim all of the first $2,000 you spent on tuition, books, equipment and school fees — but not living expenses or transportation — plus 25% of the next $2,000, for a total of $2,500. 

3. Lifetime Learning Credit: You can claim 20% of the first $10,000 you paid toward tuition and fees in 2019, for a maximum of $2,000. Like the American Opportunity Tax Credit, the Lifetime Learning Credit doesn’t count living expenses or transportation as eligible expenses. You can claim books or supplies needed for coursework.

WHAT ABOUT CHILDREN? 

Child and dependent care tax credit: Generally, it’s 20% to 35% of up to $3,000 of day care and similar costs for a child under 13, an incapacitated spouse or parent, or another dependent so you can work — and up to $6,000 of expenses for two or more dependents. 

Child tax credit: This could get you up to $2,000 per child and $500 for a non-child dependent.

Adoption credit: For the 2019 tax year, it covers up to $14,080. 

Earned Income Tax Credit: This credit can get you between $519 and $6,431 in tax year 2018 and between $529 and $6,557 in 2019 depending on how many kids you have, your marital status and how much you make. It’s something to explore if your AGI is less than about $56,000. 

CHARITY, MEDICAL AND DEDUCTING INTEREST AND EVEN OTHER TAXES?

Charitable donations deduction: If you itemize, you may be able to subtract the value of your charitable gifts — whether they’re in cash or property, such as clothes or a car — from your taxable income.

Medical expenses deduction: In general, you can deduct qualified, unreimbursed medical expenses that are more than 10% of your adjusted gross income for the tax year.

Health Savings Account contributions deduction: Contributions to HSAs are tax-deductible, and the withdrawals are tax-free, too, as long as you use them for qualified medical expenses. For 2018, if you have self-only high-deductible health coverage, you can contribute up to $3,450; in 2019, it’s $3,500. If you have family high-deductible coverage, you can contribute up to $6,900 in 2018 and $7,000 in 2019.

Deduction for state and local taxes: You may deduct up to $10,000 ($5,000 if married filing separately) for a combination of property taxes and either state and local income taxes or sales taxes. 

Mortgage interest deduction: The mortgage interest tax deduction is touted as a way to make homeownership more affordable. It cuts the federal income tax that qualifying homeowners pay by reducing their taxable income by the amount of mortgage interest they pay. (How it works.)

GAMBLING AND RETIREMENT?

Gambling loss deduction: Gambling losses and expenses are deductible only to the extent of gambling winnings. So, spending $100 on lottery tickets isn’t deductible — unless you win, and report, at least $100, too. You can’t deduct more than the amount you win. 

IRA contributions deduction: You may be able to deduct contributions to a traditional IRA, though how much you can deduct depends on whether you or your spouse is covered by a retirement plan at work and how much you make. 

401(k) contributions deduction: The IRS doesn’t tax what you divert directly from your paycheck into a 401(k). For 2019, you can funnel up $19,000 per year into such an account and if you are 50 or older you can contributed up to $25,000,

Saver’s Credit: This runs 10% to 50% of up to $2,000 in contributions to an IRA, 401(k), 403(b) or certain other retirement plans ($4,000 if filing jointly). The percentage depends on your filing status and income. 

WHAT IF YOU ARE SELF EMPLOYED?

Self-employment expenses deduction: There are many valuable tax deductions for freelancers, contractors and other self-employed people.

Home office deduction: If you use part of your home regularly and exclusively for business-related activity, the IRS lets you write off associated rent, utilities, real estate taxes, repairs, maintenance and other related expenses. 

Educator expenses deduction: If you’re a school teacher or other eligible educator, you can deduct up to $250 spent on classroom supplies.

FINALLY, WHAT ABOUT HOME SOLAR?

Residential energy credit: This one can get you up to 30% of the installation cost of solar energy systems, including solar water heaters and solar panels, in 2019. 

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