The Best Tax Deductions and Credits You Should Know About

Your tax withholding, or the number you put on your W-2, can influence whether you owe taxes when you file or get a refund. The tax deductions you claim also play a part.

A tax deduction is an amount you subtract from your taxable income. The IRS allows you to claim deductions for certain expenses or losses on your federal return.¹

Now, what are tax deductions designed to do for you? In simple terms, they save you money. When you lower your income with deductions, you reduce your tax.

Deductions are not the same as tax credits. A tax credit reduces your tax liability or the amount you owe in tax on a dollar-for-dollar basis. You can claim tax deductions and tax credits on your return, but not for the same expenses.¹

This tax deductions list includes plenty of deductions and a few credits as well. Talking to an accountant or tax professional can help you determine which deductions or credits you might be eligible for when it’s time to file your return.

1. Student loan interest deduction

You can deduct up to $2,500 worth of qualified student loan payments. A student loan can qualify for this deduction if the loan is:

• Applicable to you, your spouse, or an individual who qualified as your dependent when you took out the loan
• Pertains to education received during an academic term by an eligible student
• Paid off within a reasonable time frame following the loan acquisition

The organization you submit loan payments to should give you a 1098-E Form if you pay more than $600 worth of interest.²

2. Charitable donation deduction

The IRS allows you to deduct up to 50% of your annual gross income (AGI) in charitable donations to qualifying public charities and private foundations per year.³

Donations to a 501(c)(3) organization or similar entity can be cash or noncash contributions. For example, if you donate a car to a local charity, you could write off the value of that donation. Funds spent on driving, parking, and tolls related to volunteer work can also be tax write-offs.

3. Medical expenses deduction

You may be able to deduct medical and dental expenses on your tax return to the extent that those expenses exceed 7.5% of your adjusted gross income.⁴

This deduction applies only to expenses not covered by insurance or otherwise reimbursed to you. You can claim the deduction for expenses paid for yourself, your spouse, or an eligible dependent.

4. Deduction for state and local taxes

If you make payments for state and local taxes (SALT), you can generally deduct the following on your tax return:

• Local income tax: A tax imposed by local jurisdictions on an individual’s income earned within a specific locality.
• State income tax: A tax levied by state governments on the income earned by individuals and businesses within the state’s boundaries.
• Sales tax: A consumption tax imposed on the sale of goods and services, typically calculated as a percentage of the purchase price.

You’ll need to itemize to claim SALT deductions. This deduction is capped at $10,000 per year.⁵

5. Mortgage interest deduction

If you own a home, you can deduct mortgage interest on the first $750,000 in mortgage debt ($375,000 if you’re married and file separate returns). Interest on home equity loans or home equity lines of credit (HELOC) is also deductible if the proceeds from either one are used exclusively to buy, build, or substantially improve the home that secures the loan.⁶

6. Gambling loss deduction

If you gambled and lost during the year, you could write those losses off on your taxes. The amount of losses you deduct can’t be more than the amount of gambling income you report on your return. You’ll need to keep detailed records showing your winnings and losses for the year.⁷

7. IRA contributions deduction

Saving for retirement could help you score an additional tax break. Here are the rules for deducting contributions to an individual retirement account:

• Traditional IRA (single): If you file under single status and earn under $77,000, you can deduct up to the full contribution limit of $7,000. You qualify for a partial deduction if you earn more than $77,000 but less than $87,000. Those who earn over $87,000 do not qualify for this tax deduction.⁸
• Traditional IRA (joint): You can deduct up to the full contribution limit of $7,000 if you’re married or filing under joint status with a household income of $123,000 or less. You qualify for a partial deduction if you earn more than $123,000 but less than $143,000.⁸ Household incomes over $143,000 do not qualify for the tax deduction.

If you have a Roth IRA your contributions are not tax-deductible. But you get the benefit of a tax break in retirement since qualified withdrawals are tax-free.

8. 401(k) contributions deduction

Contributions made to a 401(k) at work are technically not tax-deductible on your return. However, you still get a tax break for contributing to your plan since any amount you put in reduces your taxable income for the year. For 2024, the maximum you can contribute to your 401(k) is $23,500.⁹

9. Self-employment expenses deduction

If you’re self-employed as a freelancer or independent contractor, you can deduct up to 50% of what you pay in self-employment taxes.

The current self-employment tax rate is 15.3% and breaks down like this:

• Social Security: 12.4% of your payments go toward Social Security services.
• Medicare: 2.9% of your self-employment tax payments go toward Medicare.

If you earn more than $400 as a self-employed individual, you must file Form 1040 when filing your federal tax return.¹⁰

10. Home office deduction

If your home is your principal place of business and you have a dedicated area for regular and exclusive home office use, you could claim this deduction on your tax return.

You can either claim the deduction based on your actual expenses or choose the simplified deduction of $5 per square foot. Under the simplified method, the maximum deduction is $1,500.¹¹

11. Educator expense deduction

Eligible educators can deduct up to $300 or $600 if married and filing jointly for unreimbursed business expenses. Qualified expenses include things that you pay for out of pocket that are necessary for your job, such as classroom materials or computer equipment.¹²

12. Health savings account contributions deduction

To qualify for the health savings account (HSA) deduction, you must be enrolled in a high-deductible health care plan. Single filers can deduct up to the maximum contribution limit of $4,150, while joint filers can deduct up to the maximum household limit of $8,300.¹³

13. Child tax credit

The Child Tax Credit is a credit for the parents or legal guardians of an eligible dependent child. Single tax filers with a modified adjusted gross income of $200,000 or less and married couples filing jointly with an MAGI of $400,000 or less can claim a full credit of up to $2,000 per child. You may be able to claim a partial credit if your income exceeds those thresholds.¹⁴

14. Child and dependent care credit

The Child and Dependent Care Credit is designed to help offset the cost of child or dependent care for working parents/caregivers. Depending on your income, the credit is worth up to 35% of your qualifying childcare expenses. For 2024, the maximum eligible expense for the credit is $3,000 for one qualifying person and $6,000 for two or more.¹⁵

15. American Opportunity tax credit

The American Opportunity Tax Credit (AOTC) is a credit for qualified higher education expenses paid for students in their first four years of college. The maximum credit amount is $2,500 per eligible student. Students must be enrolled at least half-time to qualify.¹⁶

16. Lifetime Learning credit

The Lifetime Learning Credit (LLC) is also an education tax credit, but it applies to all years of enrollment, including graduate or professional studies. There’s no limit on the number of years you can claim the credit, which maxes out at $2,000 per year. Note that you can’t claim the AOTC and the LLC for the same expenses.¹⁷

17. Adoption credit

The Adoption credit helps parents recoup some of the costs of adopting a child, including:

• Reasonable and necessary adoption fees
• Court costs and attorney fees
• Traveling expenses (including amounts spent for meals and lodging while away from home)
• Expenses directly related to and for the principal purpose of the legal adoption of an eligible child.

For 2024, the maximum credit is $16,810.¹⁸

18. Earned income tax credit

The Earned Income Tax Credit (EITC) is a credit for low and moderate-income households with dependent children. The maximum credit per child is $2,000. Similar to the child tax credit, the EITC phases out once your MAGI exceeds $200,000 (or $400,000 for joint filers).¹⁹

19. Saver’s credit

The Retirement Saver’s Credit is a tax credit for people who contribute to an IRA or another eligible retirement plan. Depending on your adjusted gross income, the amount of the credit is 10%, 20%, 0r 50% of:

• Traditional or Roth IRA contributions
• Elective salary deferrals to a 401(k), 403(b), or similar plan
• After-tax contributions to a federal Thrift Savings Plan, 403(b), or similar plan
• Contributions to an ABLE account that you’re the beneficiary of ²⁰

20. Solar tax credit

Residential energy credits can help you recoup some of the cost of installing solar panels in your home. The credit covers solar electric panels and solar water heaters, and for 2024, is worth up to 30% of the cost you pay for installation. Note that you can’t claim this credit for solar panels or water heaters installed at a business property.²¹

21. Energy efficient home improvement tax credit

Energy-efficient tax credits extend to other expenses beyond solar. You could also claim this credit for up to 30% of the costs paid to install:

• Wind turbines
• Geothermal heat pumps
• Fuel cells
• Battery storage technology

Again, this credit does not extend to energy-efficient improvements made at a business property.²¹

22. Electric vehicle tax credit

You may qualify for a credit of up to $7,500 if you bought a new, qualified plug-in EV or fuel cell electric vehicle (FCV) in 2023 or later. This credit extends to individuals and businesses.²²

To qualify, you must:

• Buy it for your own use, not for resale
• Use it primarily in the U.S.

Your MAGI may not exceed:

• $300,000 for married couples filing jointly or a surviving spouse
• $225,000 for heads of households
• $150,000 for all other filers²²

You can use your modified AGI from the year you took delivery of the vehicle or the year before, whichever is less. If your modified AGI is below the threshold in one of the two years, you can claim the credit.

There are two ways to deduct expenses on your tax return. You can claim a standard deduction or itemize. Let’s look at how each claiming method works.

The standard deduction is a fixed dollar amount set by the government that you can deduct from your adjusted gross income (AGI) without documentation of individual expenses. Your deduction is based on your filing status.

Here are the standard deduction amounts for 2024 and 2025:

• Single filers: $14,600 (2024); $15,000 (2025)
• Married couples filing jointly: $29,200 (2024); $30,000 (2025)
• Heads of household: $21,900 (2024); $22,500 (2025)²³

Itemized deductions allow you to deduct specific qualifying expenses individually. When choosing to file an itemized tax return, remember that:

• You must maintain detailed records and receipts for each expense you claim.
• Itemizing deductions is often more beneficial if you have large deductible expenses that exceed the standard deduction.

You can choose between standard and itemized deductions, but you can’t use both methods in the same tax year.

Tax deductions save you money, so it makes sense to claim all the ones that you’re eligible for. Just remember that if you claim a deduction (or a tax credit) you’ll need documentation to prove it in case the IRS comes knocking with an audit.

Looking forward to your tax refund? Here’s how long it takes to get a tax refund and what to do if your refund deposits into the wrong account.