“Give to everyone what you owe them: If you owe taxes, pay taxes; if revenue, then revenue; if respect, then respect; if honor, then honor.” — Romans 13:6-7
If you’re like most people, you just want to breeze through tax season without any major headaches. When it’s time to file, you might rush it, sticking with the standard deductions and credits you know well. But it’s possible you may be missing out on available tax breaks that could really lighten your tax load. Check out these often-overlooked deductions and credits that could potentially save you more money.
Tax Deductibles vs. Tax Credits
Tax deductions reduce the amount of taxable income you incur before taxes are assessed. With the right deductions, you could potentially move into a lower tax bracket.
By contrast, tax credits apply after your liability has been calculated, reducing your overall tax bill. Credits are based on income, expenses, and other factors. Every credit dollar reduces your tax bill by the same amount.
Wealthy, high-income taxpayers may benefit more from deductions, while lower-income families may earn more from credits. Shrewd taxpayers take advantage of both. Also, be sure to stay informed about the upcoming 2025 Tax Sunset to help you prepare.
State and Local Tax Deductions
The breaks most taxpayers ignore involve the imposition of state sales taxes. With the wild variance of tax laws from state to state, it’s easy to see how they get missed. However, they can add up.
States Without Income Tax
Taxpayers in states without income tax may be able to deduct major purchases up to the limits outlined by the IRS. Alternatively, they can track their sales tax incurred last year and base their deductions on those.
States With Income Tax
Taxpayers in states that charge income tax also must choose between those two structures (income vs. sales taxes). However, the income tax option is usually best. You can deduct up to $10,000 (or $5,000 for married couples filing separately) of combined property taxes and income or sales taxes.
Individual and Home-Based Tax Deductions and Credits
Many of the best opportunities for saving on taxes are centered around life and home. The following are some of the more overlooked or forgotten breaks.
Mortgage Interest Reduction
Qualified homeowners who itemize their deductions can cut their taxable income by deducting interest payments on their existing mortgages. Portions of the premium payments may also be deductible.
Renewable Energy Credits
Homeowners switching to renewable energy sources can write off certain expenses. You may be able to take up to 30% of the installation costs for installing solar panels, water heaters, or HVAC systems. You may also get a non-refundable credit for a new electric vehicle if it meets IRS guidelines. Credit amounts in 2023 ranged from $3,750 to $7,500.
Saver’s Credit
The saver’s credit helps low-to-medium-income taxpayers contribute to an IRA, 401(k), 403(b), and certain other retirement funds. The credit runs between 10% and 50% of up to $2,000 for each individual.
Charitable Contributions
If you itemize your deductions or donate to a charity via certain approved strategies then you may be able to deduct the total from your taxable income.
Education Deductions
The IRS facilitates continuing education with several learning tax credits:
American Opportunity Tax Credits
Students can claim the first $2,000 spent on approved educational expenses, such as tuition, books, and school fees.
Lifetime Learning Credit
The lifetime learning credit helps post-graduates continue their education. They can claim 20% of the first $10,000 spent on expenses, to a maximum of $2,000.
Student Loan Interest
Taxpayers repaying their student loans can deduct the amount they paid in interest over the last year. The maximum you can claim in 2023 and 2024 is $2,500.
Business Tax Deductions
Business owners and self-employed individuals have numerous options for reducing their tax bills.
Self-Employed Expense Deductions
Self-employed individuals can write off select expenses, such as continuing education, retirement savings, mileage reimbursement, and certain kinds of health insurance. Those working out of residences may qualify for home-office deductions as well.
Small Business Owner Tax Deductions
Some of the most helpful deductions for small business owners include:
- Qualified business income deductions
- Research and development tax credits
- Family and medical leave credit
- Employee retention credits
- Section 179 expenses, such as equipment and machinery
Check with your accountant to verify that you’re taking advantage of all applicable breaks.
Healthcare and Medical Deductions
You might qualify for certain expenses related to healthcare and medicine, including the following.
Medical Expense Deductions
If you itemize deductions, you may qualify to have certain medical expenses subtracted from your taxable income. Expenses must surpass 7.5% of your adjusted growth income.
HSA Contribution Deductions
If you’ve opened a health savings account (HSA), your contributions to the fund may be deductible.
Find More Opportunities to Save
Of course, these are just a few of the tax deductions, credits, and breaks that often slip under the radar for the folks we serve in Muncie, Indiana, and beyond, but there may be others that meet your unique circumstances even better.
Interested in exploring how we can support your financial planning or address any investment questions you may have? Don’t hesitate to reach out today to arrange a complimentary call and determine if our services are the right fit for you. To get in touch, call (765) 288-1927 or email barry.hickey@cfdinvestments.com.
About Barry
Barry Hickey is the founder, managing partner, and financial advisor at EagleFlight Wealth Management, a financial services firm based in Muncie, Indiana, helping people live and retire with dignity and financial peace by planning their financial future with a biblical worldview. Barry has been in the financial services field since the mid-1980s. In 2006, inspired by Isaiah 40:31 (“They that wait upon the Lord shall renew their strength; they shall mount up with wings as eagles; they shall run, and not be weary.”), Barry became an independent financial advisor and founded EagleFlight with the mission to help people plan for their financial future and find financial peace, and to fulfill the mission God gave him.
Born and raised in Muncie, Barry graduated from Muncie Southside and served in the Marine Corps during the Vietnam War. He holds a Series 6, 7, 63, and 66 securities licenses and the Indiana Life and Health Insurance License. He also holds the Accredited Asset Management Specialist℠, Chartered Retirement Planning Counselor℠, Certified Kingdom Advisor®, and Retirement Income Certified Professional® designations.
Outside of work, Barry enjoys reading, watching football and baseball, and spending time with his wife (Carla), children (Kristin, Ryan, and Lauren), and grandchildren (Emmi, Cate, Ben, Maddie, Sophia, Bella, and Brady). His favorite Scripture is Matthew 6:33, “But seek first his kingdom and his righteousness, and all these things will be given to you as well.” To learn more about Barry, connect with him on LinkedIn.
Barry Hickey offers Advisory Services through Creative Financial Designs, Inc., a Registered Investment Adviser. Barry Hickey and Ryan Hickey offer Securities through CFD Investments, Inc., a Registered Broker/Dealer, Member FINRA & SIPC, 2704 S. Goyer Rd., Kokomo, IN 46902. 765-453- 9600. Neither EagleFlight Wealth Management or the CFD Companies provide tax or legal advice.