Top Tax Deductions and Tax Credits You Should Know for 2023

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The IRS officially started accepting tax returns on Jan. 23, which means it’s time to dust off your receipts and gather your statements. Certain expenses qualify as tax deductions that can reduce your tax bill and increase your refund.

What Are the Tax Deductions for Tax Year 2022?

If you don’t want to pay more than you have to this tax season, make sure you claim all the deductions available to you. Read on to learn more about the most common tax deductions.

1. Standard Deduction

The standard deduction is a fixed deduction that varies depending on your filing status, age and dependent status. This year, the standard deduction is $12,950 for those filing single or married filing separately. Married couples filing together can deduct $25,900, and heads of household can deduct $19,400.

Individuals who are 65 or older and those who are blind can claim an additional $1,750 for tax-year 2022, bringing their total standard deduction to $14,700. The standard deduction also increases for taxpayers who suffered a qualified loss from a natural disaster.

For most taxpayers, claiming the standard deduction is easier and more lucrative than itemizing their deductions.

2. IRA Contributions

If you contributed to a traditional individual retirement account this year, you may be able to deduct some or all of those contributions. To qualify for this deduction, you must have some earned income during the year. Income derived from interest, dividend payments, rental income and other investments do not count as earned income.

The maximum you can contribute is $6,000 for 2022 — $7,000 if you’re age 50 or older — and you have until tax day, April 18, to contribute the funds.

3. Student Loan Interest

If you’re making payments on your student loans — or loans for your spouse or dependents — you can deduct up to $2,500 of the interest you paid during the year. This deduction applies to both federal and private student loans, although many federal student loan borrowers won’t have paid interest during the current payment moratorium.

4. Health Savings Account

A health savings account is a type of savings account specifically used for medical expenses. If you have an eligible high-deductible health insurance plan, you can make pre-tax contributions into an HSA and use the money to pay medical expenses incurred before you reach the deductible.

The maximum contribution for 2022 was $3,650 for self-only coverage and $7,300 for family plans. Individuals age 55 and older can contribute an additional $1,000.

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5. Home Office

Self-employed individuals who work from home can deduct expenses for the part of the home used for business. This includes a home office, a consultation room and storage — including separate buildings on the premises, used exclusively and regularly for doing business.

Home daycare facilities also qualify for this deduction, but remote workers are out of luck. The tax code specifically excludes them from this deduction.

6. Mortgage Interest

Homeowners with a mortgage can deduct the interest they pay on the loan for both primary and secondary residences. This applies to interest paid on up to $1 million of mortgage debt for homes purchased before Dec. 16, 2017, and on up to $750,000 of mortgage debt for homes purchased after that date.

The debt must be secured by the home, and the deduction cannot include any part of the home used for business purposes. You must itemize deductions to qualify.

7. Medical and Dental Expenses

You can claim a deduction for medical and dental expenses that are greater than 7.5% of your adjusted gross income if you itemize deductions. Qualifying expenses include payments to doctors and other medical professionals and the cost to diagnose, cure, treat or prevent disease. Expenses used to pay for treatments for alcohol and drug addiction, smoking cessation and weight loss also apply.

Self-employed taxpayers may be able to deduct health insurance premiums, as well.

8. Charitable Contributions

If you itemize deductions, you can subtract cash and noncash contributions to 503(c)(3) organizations. Noncash contributions include real estate, vehicles and other property. The IRS will also let you claim a deduction for the miles you drive for volunteer work, but you can’t claim your time as a noncash contribution.

In past years, taxpayers could claim a deduction for charitable contributions even if they took the standard deduction. That’s not available this year.

9. State and Local Taxes

If you pay state and local income taxes or state and local sales taxes — including real estate and property taxes — you may be able to deduct up to a combined total of $10,000, or $5,000 if married filing separately.

10. Educator Expenses

The educator expense tax deduction is available to instructors, counselors, principals and aides who work at least 900 hours each school year and spend their own money on supplies they need for work. They can deduct up to $300 for books, supplies, computers and computer software used in their classrooms. Pre-kindergarten teachers and daycare workers cannot claim this deduction.

What Are the Tax Credits for Tax Year 2022?

Tax credits reduce the amount of taxes you have to pay on your income. Here are some examples of tax credits you might be eligible for.

11. Earned Income Tax Credit

Intended for low-income working taxpayers, the Earned Income Tax Credit offers tiered credits depending on your filing status and the number of dependents you claim. Your earned income must be under $10,300 and does not include interest and dividends, pensions, Social Security, unemployment benefits, alimony, child support or pay for work done as an inmate. You must have earned income from employment to qualify.

The credit amounts fall between $560 with no dependents and $6,935 for three or more dependents.

12. Child Tax Credit

The Child Tax Credit is available for parents and legal guardians of dependents who are under the age of 17 at the end of the tax year. The dependent must be your child, stepchild, foster child, sibling, stepsibling or half-sibling, or one of their descendents.

To qualify for this credit, your income must be under $200,000 — $400,000 for joint returns.

13. American Opportunity Tax Credit

Current students with a gross income of $80,000 or less — $160,000 or less for married couples filing jointly — who are enrolled at least half time in a post-secondary education course, for at least one academic period, are eligible for the American Opportunity Tax Credit. Students could receive a credit of up to $2,500 for educational expenses.

This credit is available for the first four years of post-secondary education.

14. Lifetime Learning Credit

The Lifetime Learning Credit is very similar to the American Opportunity Credit, but it does not limit the number of years you can claim. This credit is also available for graduate and professional degree courses, including job skills training, and you do not have to be pursuing a degree to qualify — but you do have to be enrolled at an eligible institution for at least one academic period during the year.

You can receive a tax credit of up to $2,000 if you are eligible.

15. Child and Dependent Care Credit

This credit is intended to offset the cost of babysitting or daycare services for a child or care for a disabled adult. You could receive a credit of up to $3,000 for one qualifying dependent or $6,000 for two or more qualifying dependents.

You cannot claim this credit if you are married and filing separately.

16. Savers Tax Credit

Taxpayers with modest income who contribute to eligible retirement accounts may be eligible for the Savers Tax Credit. This credit equals a certain percentage of certain contributions — 10%, 20% or 50% — for taxpayers who are at least 18 years old, not claimed as a dependent by anyone and not a student.

The lower your income, the higher percentage you’re eligible for as a credit.

Tax Deductions vs. Tax Credits

Tax deductions are not the only way to lower your tax bill. Whether you choose the standard deduction or itemize your deductions, you may be able to claim tax credits as well. Whereas a deduction lowers your taxable income, a credit reduces the amount of tax you owe.

What Is a Tax Deduction?

A tax deduction is an expense that lowers an individual’s or business’ tax liability by reducing their taxable income. The most common is the standard deduction. The other two types of deductions are referred to as above-the-line and below-the-line deductions, depending on whether you subtract them before you calculate your adjusted gross income or after.

Say, for example, you earned $100,000 last year and plan to take the standard deduction as a single filer. This lowers your taxable income to $87,050. Instead of paying tax on $100,000 in income, you’ll only have to pay tax on the $87,050.

What Is a Tax Credit?

A tax credit, on the other hand, reduces the tax you owe — every $1 of tax credit reduces your tax bill by by $1.

If you owe $10,000 in taxes and qualify for a $2,500 tax credit, your tax bill drops to $7,500. In the case of a refundable credit, your tax bill can be reduced to less than $0, in which case you receive a refund.

Final Take

As you prepare for tax season this year, take time to learn about the different tax deductions and credits you might be able to claim. You may be surprised to discover how much you can save — and you may even get a nice refund this year.

Daria Uhlig and Amber Barkley contributed to the reporting for this article.

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