20 Most Popular Tax Deductions and Tax Credits for 2023

20 Most Popular Tax Deductions and Tax Credits for 2023
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As the tax season approaches, it's essential to know about the various deductions and credits that you can claim to reduce your tax bill. In this article, we will discuss 20 of the most popular tax deductions and credits available for 2023.

1. Mortgage Interest Deduction

The mortgage interest deduction is one of the most widely claimed deductions, and it allows taxpayers to deduct the interest paid on a mortgage for their primary residence. To be eligible, the mortgage must be for a first or second home, and the loan must have been taken out after December 15, 2017. The maximum amount of deductible mortgage interest is $750,000 for joint filers and $375,000 for single filers.

2. State and Local Tax Deduction (SALT)

The State and Local Tax Deduction, also known as SALT, allows taxpayers to deduct state and local property taxes, as well as state and local income or sales taxes, from their federal taxable income. The maximum amount of deductible SALT is $10,000.

3. Charitable Contributions Deduction

Taxpayers who make donations to qualified charities can deduct these contributions from their taxable income. The maximum deductible amount is 60% of the taxpayer's adjusted gross income (AGI) for cash contributions and 30% for non-cash contributions.

4. Medical and Dental Expenses Deduction

Taxpayers can deduct eligible medical and dental expenses that exceed 7.5% of their AGI. Eligible expenses include doctor visits, prescription drugs, hospital stays, and dental procedures.

5. Retirement Contributions Deduction

Taxpayers who contribute to a traditional IRA can deduct their contributions from their taxable income, up to a maximum of $6,000 for those under age 50 and $7,000 for those over age 50. Contributions to a 401(k) or similar workplace retirement plan are not deductible but are excluded from taxable income.

6. Student Loan Interest Deduction

Taxpayers who have paid interest on student loans can deduct up to $2,500 in student loan interest from their taxable income. To be eligible, the taxpayer must have a modified AGI of less than $85,000 for single filers and $170,000 for joint filers.

7. Educator Expense Deduction

Educators can deduct up to $250 in out-of-pocket expenses for classroom supplies and materials from their taxable income. This deduction is available to teachers, instructors, counselors, and principals at K-12 schools.

8. Energy-Efficient Home Improvements Deduction

Taxpayers who make energy-efficient home improvements, such as installing insulation, energy-efficient windows, or a new furnace, can claim a tax credit of up to 10% of the cost of the improvements, up to a maximum of $500.

9. Child and Dependent Care Credit

Taxpayers who pay for child or dependent care while they work or look for work can claim a tax credit of up to $3,000 for one dependent and $6,000 for two or more dependents. The credit is equal to a percentage of the care expenses, up to a maximum of 35%.

10. Adoption Credit

Taxpayers who adopt a child can claim a tax credit of up to $14,440 to help cover the costs of adoption, such as legal fees and travel expenses. The credit is partially refundable, which means that even if the taxpayer does not owe any taxes, they may still receive a refund for a portion of the credit.

11. Self-Employment Tax Deduction

Self-employed individuals can deduct the employer-equivalent portion of their self-employment tax from their taxable income. This deduction reduces the taxable portion of self-employment income and can result in significant tax savings for the self-employed.

12. Business Expense Deduction

Small business owners and self-employed individuals can deduct eligible business expenses from their taxable income. This includes expenses such as office supplies, advertising, and travel. Business owners should keep accurate records of their expenses and make sure that the expenses are directly related to the operation of the business.

13. Home Office Deduction

Taxpayers who use a portion of their home for business purposes can deduct a portion of their home-related expenses, such as mortgage interest, property taxes, and utilities. The deduction is based on the percentage of the home used for business and the square footage of the home office.

14. Retirement Plan Contributions Credit

Small business owners who establish and contribute to a qualified retirement plan for their employees can claim a tax credit of up to $500 per year for three years. This credit helps offset the cost of establishing and maintaining the retirement plan.

15. Capital Gains Tax Deduction

Taxpayers who sell investments, such as stocks or real estate, can exclude a portion of the gain from their taxable income. The exclusion amount varies based on the taxpayer's income and the type of investment sold.

16. Health Savings Account (HSA) Deduction

Taxpayers who have a high-deductible health insurance plan can contribute to a Health Savings Account (HSA) and deduct their contributions from their taxable income. HSA contributions are not subject to federal income tax and can be used to pay for eligible medical expenses.

17. Lifetime Learning Credit

Taxpayers who are pursuing post-secondary education can claim a tax credit of up to $2,000 per tax return for tuition and related expenses. The credit is available for an unlimited number of years and can be claimed for both undergraduate and graduate-level courses.

18. Premium Tax Credit

Taxpayers who purchase health insurance through the Marketplace can claim a tax credit to help lower their monthly premiums. The credit is based on the taxpayer's income and the cost of the health insurance plan.

19. Earned Income Tax Credit (EITC)

Low- to moderate-income taxpayers who work can claim the Earned Income Tax Credit (EITC). The credit amount varies based on the taxpayer's income, filing status, and number of children. The EITC can result in a significant reduction of the taxpayer's tax bill or a refund of a portion of the taxes paid.

20. Alternative Minimum Tax (AMT) Credit

Taxpayers who have paid the Alternative Minimum Tax (AMT) in a previous year can claim a tax credit for a portion of the AMT paid in that year. The credit is claimed on the taxpayer's current-year tax return and can result in a significant reduction of the taxpayer's tax bill.

By being aware of these tax deductions and credits, you can save significant amounts on your tax bill and keep more of your hard-earned money. It's essential to keep accurate records of your expenses and to consult a tax professional if you have any questions about your eligibility for these deductions and credits.