20 Popular Tax Deductions and Tax Credits for 2023
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Tax benefits are generally broken into two major categories: tax deductions and tax credits. As you examine programs that could potentially apply to you, it's a good idea to know the differences in how tax savings can work.
In short, a credit gives you a dollar-for-dollar reduction in the amount of tax you owe. A tax deduction, also commonly called a "tax write-off," provides a smaller benefit by allowing you to deduct a certain amount from your taxable income. Another consideration with tax deductions is that they won't do you much good unless you itemize your deductions, which only makes sense for people with a considerable amount of deductible expenses.
There are hundreds of itemized deductions and tax credits out there that you can claim on the taxes you file in 2023. Here are 20 popular tax breaks, an explainer of how tax deductions work, and links to our other content that will help you learn more.
1. Child tax credit
The child tax credit, or CTC, could get you up to $2,000 per child, with $1,500 of the credit being potentially refundable.
2. Child and dependent care credit
The child and dependent care credit, or CDCC, is meant to cover a percentage of day care and similar costs for a child under 13, a spouse or parent unable to care for themselves, or another dependent so you can work. Generally, it's up to 35% of $3,000 of expenses for one dependent or $6,000 for two or more dependents.
3. American opportunity tax credit
The American opportunity tax credit, sometimes shortened to AOC, lets you claim all of the first $2,000 you spent on tuition, books, equipment and school fees — but not living expenses or transportation — plus 25% of the next $2,000, for a total of $2,500.
4. Lifetime learning credit
The lifetime learning credit lets you claim 20% of the first $10,000 you paid toward tuition and fees, for a maximum of $2,000. Like the American opportunity tax credit, the lifetime learning credit doesn’t count living expenses or transportation as eligible expenses. You can claim books or supplies needed for coursework.
5. Student loan interest deduction
The student loan interest deduction lets borrowers write off up to $2,500 from their taxable income if they paid interest on their student loans.
6. Adoption credit
This item covers up to $14,890 in adoption costs per child. The credit begins to incrementally decrease at certain income levels and completely phases once if your 2022 modified adjusted gross income exceeds $263,410.
7. Earned income tax credit
This earned income tax credit, or EITC, can get you between $560 and $6,935 depending on how many kids you have, your marital status and how much you make. It’s something to explore if your AGI is less than about $59,000.
8. Charitable donations deduction
If you itemize, you may be able to write off the value of your charitable gifts — whether they’re in cash or property, such as clothes or a car — from your taxable income. Per the IRS, you can generally deduct up to 60% of your adjusted gross income.
9. Medical expenses deduction
In general, you can write off qualified, unreimbursed medical expenses that are more than 7.5% of your adjusted gross income for the tax year.
10. Deduction for state and local taxes
You may deduct up to $10,000 ($5,000 if married filing separately) for a combination of property taxes and either state and local income taxes or sales taxes. (How the property tax deduction and the sales tax deduction work.)
11. Mortgage interest deduction
The mortgage interest tax deduction is touted as a way to make homeownership more affordable. It cuts the federal income tax that qualifying homeowners pay by reducing their taxable income by the amount of mortgage interest they pay.
12. Gambling loss deduction
Gambling losses and expenses are deductible only to the extent of gambling winnings. So, spending $100 on lottery tickets isn’t deductible — unless you win, and report, at least $100, too. You can’t write off more than the amount you win.
13. IRA contributions deduction
You may be able to deduct contributions to a traditional IRA, though how much you can deduct depends on whether you or your spouse is covered by a retirement plan at work and how much you make.
14. 401(k) contributions deduction
The IRS doesn’t tax what you divert directly from your paycheck into a 401(k). In 2022, the contribution limit was $20,500 ($27,000 if you were 50 or older). These retirement accounts are usually sponsored by employers, although self-employed people can open their own 401(k)s.
15. Saver’s credit
The saver's credit runs 10% to 50% of up to $2,000 ($4,000 if filing jointly) in contributions to an IRA, 401(k), 403(b) or certain other retirement plans. The percentage depends on your filing status and income. (How it works.)
16. Health savings account contributions deduction
Contributions to HSAs are tax-deductible, and the withdrawals are tax-free, too, as long as you use them for qualified medical expenses.
17. Self-employment expenses deduction
There are many valuable tax write-offs for freelancers, contractors and other self-employed people. (How it works.)
18. Home office deduction
If you use part of your home regularly and exclusively for business-related activity, the IRS lets you write off certain self-employment deductions for associated rent, utilities, real estate taxes, repairs, maintenance and other related expenses.
19. Educator expenses deduction
If you’re a school teacher or other eligible educator, you can deduct up to $300 spent on classroom supplies in 2022.
20. Solar tax credit
The solar tax credit, also known as the "residential clean energy credit," can get you up to 30% of the installation cost of solar energy systems, including solar water heaters and solar panels.
Bonus: Electric vehicle tax credit
The nonrefundable EV tax credit ranges from $2,500 to $7500 for tax year 2022 and eligibility depends on the vehicle’s weight, the manufacturer, and whether you own the car. For tax year 2023 (taxes filed in 2024), the credit is greatly expanded and also includes used vehicles.
What are tax deductions?
A tax deduction or tax write-off lowers your taxable income and thus reduces your tax liability. You subtract the amount of the tax deduction from your income, making your taxable income lower. The lower your taxable income, the lower your tax bill.
The IRS allows taxpayers to lower their taxable income by choosing either the standard deduction or itemized deductions. Before that, you can also make certain adjustments to your gross income by taking above-the-line deductions in order to arrive at what's called your adjusted gross income.
Contributions to a retirement account, health savings account contributions or student loan interest payments are referred to as "above-the-line" deductions, but it may be easier to think of them as "adjustments" to your income. These deductions are subtracted from your gross income to determine your adjusted gross income, or AGI. If you qualify, you can take them regardless of whether you itemize or take the standard deduction. Your AGI is important because it is the starting point for calculating your tax bill and also the basis on which you might qualify for many deductions and credits.
Below-the-line deductions, on the other hand, are qualified expenses that are subtracted from your adjusted gross income to help determine your taxable income. The IRS lets you take either the standard deduction or itemize. There are dozens of itemized deductions available to taxpayers and all of them have different rules. Examples of itemized deductions include deductions for unreimbursed medical expenses, charitable donations, and mortgage interest. Whether you choose to itemize or take the standard deduction depends largely on which route will save you more money.
What are tax write-offs?
The IRS doesn't use the term "tax write-offs" anywhere in the Internal Revenue Code, but the phrase has gained popularity as a synonym for "tax deduction" over the years. If you hear someone talking about a tax write-off, they're probably referring to certain qualified expenses — or deductions — that itemizers can take to lower their taxable income. (Note that you'll generally only wind up using itemized deductions if you don't use the standard deduction.)
A tax credit, on the other hand, is a dollar-for-dollar reduction in your actual tax bill. A few credits are refundable, which means if you owe $250 in taxes but qualify for a $1,000 credit, you’ll get a check for the difference of $750. Most tax credits, however, aren’t refundable
A tax credit can make a much bigger dent in your tax bill than a tax deduction.
How do you claim tax deductions?
Generally, there are two ways to claim tax deductions: Take the standard deduction or itemize deductions. You can’t do both.
The standard deduction basically is a flat-dollar, no-questions-asked reduction in your adjusted gross income (AGI). The amount you qualify for depends on your filing status. You can learn more about standard deduction amounts here. People over age 65 or who are blind get a bigger standard deduction.
Itemized deductions let you cut your taxable income by taking any of the hundreds of available tax deductions you qualify for. The more you can deduct, the less you’ll pay in taxes.
The standard deduction has gone up significantly in recent years, so you might find that it's the better option for you now even if you've itemized in the past. Your tax software or tax advisor can run your return both ways to see which method produces a lower tax bill.
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