The IRS offers ways to save money on taxes each year in the form of tax deductions and credits. Tax deduction works by lowering the taxable income and reducing the tax liability. This deduction is subtracted from the income, lowering the taxable income and reducing the final tax bill. It can be claimed in two ways – standard or itemized deductions. While there are many deductions to choose from, here are the ten most popular options.
Charitable donations deduction
Individuals who donated in cash or kind to 501(c)3 organizations during the tax year may claim a deduction on their federal tax returns.
Gambling loss deduction
This deduction requires itemized reporting of all winning as taxable income. The losses and expenses covered here are deductible only to the extent of gambling winnings.
Student loan interest deduction
Those who paid interest for a qualified student loan in 2022 (for themselves or dependents), or are legally required to pay interest, may claim up to $2500 in tax deductions for the financial year.
Medical expenses deduction
Qualified, unreimbursed medical expenses worth more than 7.5% of the adjusted gross income for the taxable year can be deducted. These must be reported as itemized deductions on IRS Schedule A.
Deduction for state and local taxes
For a combination of property taxes and either state or local income and sales taxes, up to $10,000 may be deducted from the taxable income.
Mortgage interest deduction
For qualifying homeowners, home mortgage interest on the first $750,000 may be claimed as a deduction. This aims to make homeownership more affordable.
Health savings account contributions deduction
A tax deduction can be claimed for any contributions made to HSA, up to $7500 for self-only coverage. When claimed for qualified medical expenditures, these withdrawals are tax-free too.
Educator expenses deduction
School teachers and other eligible educators spending on books, technology, computer software, and other classroom supplies can claim up to $300 in tax deductions.
IRA contributions deduction
Contributions made to a traditional IRA may be deducted. This value depends on one’s income and the retirement coverage offered by their workplace.
401(k) contributions deduction
Payments made to a 401(k) account can reduce tax liability, as this amount is not taxed by the IRS. The limit for this account changes each year. In 2023, the maximum contribution allowed is $22,500 for individuals under 50.
