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Popular Tax Deductions and Credits

Tax season can be a stressful time, but understanding the various deductions and credits available can help you save money. At O1ne Mortgage, we want to ensure you have all the information you need to maximize your tax savings. If you have any questions or need assistance with your mortgage, call us at 213-732-3074.

What Are Tax Deductions?

Tax deductions are qualifying expenses, charity donations, or losses that the IRS allows you to subtract from your taxable income, thereby lowering your tax bill. These deductions can be itemized individually on your tax return.

Tax Credit vs. Tax Deduction

A tax deduction reduces your taxable income, which in turn lowers your tax bill. On the other hand, a tax credit reduces your tax bill dollar for dollar. Both can be claimed if you are eligible, providing significant savings.

How Do You Claim Tax Deductions?

Tax preparation software can automate this process for you. If you prefer to file manually, use IRS Form 1040. Here’s a brief guide:

• Claim adjustments to income on Schedule 1.
• Itemize deductions on Schedule A.
• Choose the standard deduction on line 12, Form 1040, if you aren’t itemizing.

17 Popular Tax Deductions and Credits

1. Mortgage Interest Deduction

All or part of the interest you pay on your mortgage may be tax-deductible. This applies to the first $750,000 in mortgage debt on your primary or second residence.

2. State and Local Taxes

You may deduct up to $10,000 of taxes paid to state, local, and foreign governments. This includes income taxes, general sales taxes, and property taxes.

3. Charity Donation Deduction

Both cash and noncash charitable donations are tax-deductible. Ensure you follow IRS guidelines to determine which charities qualify and how to document your donations.

4. Medical Expense Deduction

Out-of-pocket healthcare expenses that exceed 7.5% of your adjusted gross income may be tax-deductible. This includes a wide range of expenses from health insurance premiums to alternative treatments.

5. Disaster, Casualty, and Theft Loss Deduction

If your property is damaged, destroyed, or lost in a federally declared disaster, a portion of your loss may be tax-deductible. This also applies to stolen property.

6. Self-Employment Expense Deductions

Self-employed individuals can deduct business expenses such as equipment, supplies, and health insurance premiums. They can also deduct half of their self-employment tax.

7. Adjustments to Income

These include deductible contributions to traditional IRAs and HSAs, alimony paid, student loan interest, and educator expenses.

8. Child Tax Credit

You may qualify for a child tax credit of up to $2,000 per qualifying child. Income limits apply.

9. Child and Dependent Care Tax Credit

If you pay for child or dependent care so you can work, you may be eligible for a credit of 20% to 35% of your care expenses.

10. American Opportunity Tax Credit

This credit allows you to deduct up to $2,500 in qualified college expenses for an eligible student in their first four years of higher education.

11. Lifetime Learning Credit

Claim a credit of up to $2,000 per tax return for eligible education expenses. This credit is subject to income limitations.

12. Earned Income Tax Credit

This credit helps working people and families with limited incomes. The maximum credit for the 2023 tax year was $7,430 for families with three or more qualifying children.

13. Saver’s Credit

This credit offers an incentive for low- and moderate-income taxpayers to save for retirement. The maximum credit is $1,000 ($2,000 for married couples).

14. Energy Efficient Home Improvement Credit

Claim a tax credit of up to $3,200 for qualified energy efficiency improvements and home energy audits.

15. Residential Clean Energy Tax Credit

If you install renewable energy equipment at your home, you may be eligible to claim a credit for 30% of your costs.

16. Clean Vehicle Tax Credits

Claim a tax credit of up to $7,500 when you purchase a qualifying new electric vehicle or fuel cell electric vehicle.

The Bottom Line

These are some of the most popular tax deductions and credits, but there are many more. For a complete list, refer to IRS publications or consult a tax professional. At O1ne Mortgage, we are here to help you with all your mortgage needs. Call us at 213-732-3074 for expert advice and assistance.

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