Deductions & Tax Credits for Individuals

If there’s one thing that most people can agree on, it’s that paying taxes really sucks! It’s the one thing that almost everyone in the US has in common, we all pay them… but there’s no reason to pay more than you have to. In fact, let’s see if there’s any tax deductions or tax credits that could make sense for you.

For you to fully grasp the importance of what were going to cover, let's make sure you grasp the basics of how the income tax calc works in the US. Generally, you start with income (from all sources) and you can subtract the above the line deductions. From there, you subtract either the standard or itemized deductions (generally whichever is bigger) and calculate your tax due after those deductions. Lastly, you lower your tax due by any tax credits you have available to you.

If you paid more tax than you owe, you can get a refund. If you paid less than you owe, well you gotta pay when you file. I made a video explaining the formula for how income taxes work and where you will see the deductions and tax credits - you can watch that here.

Now, let’s cover what deductions and credits are available to individuals, even if they don’t have kids or a business.

Tax Deductions

Deductions lower the amount of money you get taxed on. For example, if I made $50k and had $5k in deductions, I wouldn’t SAVE $5k in taxes. I would be taxed on $45k since I get to deduct those expenses from my taxable income.

Business owners get all sorts of business deductions & tax credits from rent and insurance to equipment and vehicles, plus so much more. As individuals, you don’t get quite so many options, but you do have some options you can take advantage of.

Above the line deductions

• Student loan interest

• Educator expenses (teacher expenses)

• Health savings account deduction

• Traditional IRA contributions (subject to income limitations)

• Alimony payments (subject to restriction on timing of divorce agreement)

• One half self employment taxes

• Self employed retirement

• Military moving expenses

IRS guidance for above the line deductions can be located here.

Standard deductions (2024)

• Single and married filing separately - $14,600

• Married filing joint - $29,200

• Head of household - $21,900

Itemized tax deductions can include:

• Medical & dental expenses

• Taxes - state & local taxes, property taxes, sales taxes, and real estate taxes

• Home mortgage interest

• Charitable contributions

• Casualty & theft losses - from a federally declared disaster area

• Other - gambling losses, casualty & theft losses of certain income-producing property, certain unrecovered investment in a pension, and more.

IRS guidance for itemized expenses can be located here.

Tax Credits

Unlike tax deductions, remember they lower how much you’re taxed on, tax credits will actually lower the amount of tax that you owe! If you made $50k, owed $8k in taxes, and got $3k in tax credits… then you only owe $5k in taxes now, it lowers what you owe dollar for dollar. Similar to tax deductions, business owners have a lot more options, but there are still many options available to you as an individual.

• Earned income tax credit

• Home energy

• Child tax credit

• Child and dependent Care tax credit

• Clean vehicle tax credit (EV)

• Saver’s credit

• American opportunity tax credit

• Lifetime learning tax credit

• Premium tax credit

IRS guidance on tax credits for individuals can be located here.

If there is one thing you are taking from this newsletter, it’s this, take action NOW. Once the year closes, in other words, after 12/31/24, most of these will not be available for you to take action to save on your 2024 tax return. You have to make the expenses, or satisfy the requirements for the tax credit during the year to get the tax savings benefit when you file in April. When you file, your tax preparer will not be able to magically give you deductions or tax credits that you simply aren’t eligible for.

Hope this helps make taxes a little less scary, y’all have a great week!

Neyra

Please remember that while I am a CPA, I am not your CPA. Please consult a licensed professional on any financial, tax, or business decision you contemplate