Doing taxes can be intimidating, especially if you owe money to the IRS. Claiming tax write-offs can help to shrink your tax bill.
Writing things off from your taxes can reduce your taxable income for the year. If you aren’t well-versed in tax lingo or what write-offs are, we have a quick guide to fill you in.
How do you know what you can write off? Here’s a closer look at how tax deductions work — and how to make them work for you.
What is a tax write-off?
Tax write-offs are expenses you “write off” or deduct from your taxable income on your tax return. The IRS uses your income, write-offs, and any tax credits you qualify for to determine your tax bracket and tax rate.
The more you can write off, the more you could potentially reduce your tax bill. If you typically get money back when you file, claiming more deductions could increase the size of your refund.
Tax write-offs vs. deductions
Tax write-offs and tax deductions are two ways of referring to the same thing. It’s common to hear these terms used interchangeably. So what is a tax deduction?
Deductions are amounts you deduct from your income before tax is calculated, according to the IRS.2 The federal tax code defines tax deductions for individuals and tax deductions for businesses. State tax codes can have their own deductions.
The IRS determines what you can claim as deductions for taxes. Updates to the tax code can introduce new deductions, do away with existing ones, or make changes to eligibility requirements or deduction limits.
Tax deductions vs. credits
Claiming tax deductions and credits can help you save money at tax time. However, they don’t work the same way.
As mentioned, tax deductions reduce your taxable income. For example, if you have $50,000 in taxable income and can claim a $5,000 deduction, that knocks the amount of income the IRS taxes down to $45,000.
Okay, but what’s a tax credit?
A credit reduces the amount you owe in taxes, dollar for dollar. If you owe $5,000 in taxes to the IRS and you’re eligible to claim a $500 credit, you’d owe $4,500 instead. Some tax credits are refundable, meaning they can pay you back even if you don’t owe any taxes.
Just like with deductions, there are tax credits for individuals and businesses. With both deductions and credits, what you can claim on your taxes depends mainly on your filing status and income.
How do tax write-offs work?
Tax deductions or write-offs reduce your taxable income. The IRS considers all income to be taxable unless it’s specifically exempt. Here are some examples of taxable and nontaxable income.
Understanding taxable income is the key to understanding tax write-offs. Your deductions and tax credits you claim can determine your tax bracket.
Your tax bracket determines what tax rate you pay for the year. The higher your income, the higher your tax rate. For the 2023 tax year, the lowest marginal tax rate is 10%, while the highest earners are taxed at the 37% rate. You can find your tax bracket if you know your filing status and taxable income.
Claiming deductions can help to shift you into a lower tax bracket. For example, say that you have taxable income of $96,000 for the year. That would put you into the 24% tax bracket.
Now, what if you claim deductions totaling $3,000? That would drop your taxable income to $93,000. It would also put you in the 22% tax bracket instead. A difference of 2% might not seem like much, but it could save you an estimated $600 in taxes.
Common tax write-offs
The types of expenses you write off on your taxes will depend on your financial situation. For example, if you’re a student, you’re likely to have a simpler tax return than someone who’s married with three kids and owns a home.
With that in mind, here are some of the most common deductions for taxes:
- Property taxes (if you own a home)
- Mortgage interest
- Student loan interest
- Medical expenses
- Charitable contributions
- State and local taxes
- IRA and 401(k) contributions
- Self-employment expenses
- Educator expenses
- Business expenses, including home office expenses
Certain tax credits are relatively common as well.
If you have kids, for example, you might be eligible to claim the Child Tax Credit and the Child and Dependent Care Credit. The first is a credit you can claim for having children; the second can help you recover some of the costs of paying for childcare.
Other notable tax credits include:
- Earned Income Credit
- American Opportunity Credit
- Lifetime Learning Credit
- Adoption Credit
- Retirement Saver’s Credit
Here’s one thing to know about tax write-offs: You generally can’t claim a deduction and a credit for the same expenses. If you have expenses that would make you eligible for both a deduction and a credit, you’d need to decide which one to take.
Expenses you can't write off
The tax code is constantly changing, and the IRS frequently updates the list of available deductions and credits. Some of the things you can’t write off on your taxes include:
- Donations to non-qualified charities
- Donations to political parties
- Child support payments you make to someone else
- Non-qualified medical expenses (such as cosmetic surgery that doesn’t have an underlying medical need)
- Homeowners insurance premiums
- Commuting costs
- Legal fees
- Penalties and fines
You also can’t deduct mortgage interest on a home equity loan or HELOC unless you qualify for an exception. The IRS only allows you to write off the interest if you use the proceeds to buy, build or substantially improve the property that secures the loan.3
Standard deduction vs. itemized deductions
When you file taxes, you have two options for claiming deductions. You can take the standard deduction, or you can itemize.
The standard deduction allows you to subtract a flat dollar amount from your taxable income. The amount you can deduct is based on your filing status. Here are the standard deduction limits4 for 2023:
- Single or married filing separately: $13,850
- Married filing jointly: $27,700
- Head of household: $20,800
Itemizing deductions means listing out each expense you want to deduct on Form Schedule A of your tax return. You must itemize certain expenses, including mortgage interest, charitable deductions, and qualified medical expenses.
Should you take the standard deduction or itemize your deductions?
Choose the right option for you by calculating how much you’d be able to deduct if you itemized and comparing that number to the standard deduction. Go for the route that gives you a larger deduction unless there are other factors to consider.
How to write off business expenses
If you run a business or you’re self-employed, there are certain expenses you may be able to deduct from your taxes. Generally, there are two steps to writing off business expenses:
- Figuring out what you can deduct
- Reporting those expenses on Schedule C
In terms of what you can deduct, qualifying expenses include self-employment tax, home office expenses, business-related travel expenses, supplies, advertising or marketing, and contributions to self-employment retirement plans.
The key to deducting business expenses is maintaining accurate records. Setting up a separate bank account and credit card just for business spending can be a smart way to track write-offs.
You can also use accounting software programs to track and organize expenses by category, making it easier to create year-end expense reports when it’s time to prepare for tax season.
Do you get money back on tax write-offs?
Claiming tax write-offs or deductions can reduce your taxable income for the year. Write-offs can lower the amount of income you’re required to pay tax on, which could increase any tax refund due to you. Tax credits can reduce what you owe dollar for dollar and potentially refund money back to you, even if you owe $0 in taxes.
How much can I write off on my taxes?
The amount you can deduct from your taxes or the credits you’re eligible to claim depends on your filing status and income. Running a business, owning a home, or paying student loans could help you qualify for a broader range of tax deductions and credits.
What items can I write off?
The expenses you’re eligible to write off from your taxes will depend on your situation. Some common tax deductions include mortgage interest, student loan interest, self-employment expenses, charitable donations, and qualified medical expenses.
Make the most of your tax savings
You might wonder how anyone makes sense of tax filing, but once you get the hang of it, it’s not too difficult. Knowing what write-offs you’re eligible for can help you save the most money possible.
Maximize your tax refund – here’s how to get every tax write-off you deserve.