David J. Blount, CFP®
LPL Financial Advisor
Many people just want to get through tax season unscathed. When filing season comes around, some may rush through, only applying the standard, most familiar tax deductions and credits.
However, tax breaks can make serious dents in your tax liability. Here are some often-overlooked deductions and credits that may apply to you.
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.
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 Overlooked Tax Deductions and Credits
These are some of the most underutilized tax deductions, credits, and breaks for individuals in Oviedo, FL, but there may be more that fit your situation
To schedule a complimentary call to discuss your current financial planning considerations or investment concerns and see if our services are a match for your needs, contact us today at service@davidblountIIPS.com or (407) 542-3249. You can also send us a message here.
About David
David Blount is President and CEO of Investment & Insurance Planning Services, LLC (IIPS), an independent and fee-based firm that helps clients establish their financial goals and creates custom financial plans to help them pursue those goals. They specialize in working with pre-retirees, individuals in a career transition, L3Harris engineers, and JetBlue pilots. David’s motivation comes from seeing his clients pursue their goals. He says, “It’s very rewarding to help people make successful transitions from one career to another, start a small business, or retire.”
David received his bachelor’s degree from Troy University, and before becoming a financial planner in 2000, he had a nine-year career in the United States Coast Guard. He obtained the CERTIFIED FINANCIAL PLANNER™ designation in 2007. He has served as the guest financial expert on Orange Television’s Adult Lifestyle Magazine Show and frequently provides financial and retirement planning workshops. Outside of work, he enjoys spending time with his wife, Michelle, their two kids, Ryan and Alana, their dog, Jack, and visiting with friends. An avid outdoorsman, he enjoys fishing, hiking, and exercising, and as a committed person of faith, he enjoys attending church and is passionate about helping people in his community. To learn more about David, connect with him on LinkedIn.
This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor. Investment & Insurance Planning Services and LPL Financial do not offer tax advice or services.