What’s ahead:
- Covid-19 Deductions and Credits
- Education Deductions and Credits
- Military Deductions
- Business Deductions
- Retirement Deductions
- Health and Medical Deductions
- Family and Dependent Credits
- Homeowner Deductions
- Personal Property Rental Deductions
- Tax Deductions and Credits
- Vehicle Credits and Deductions
- Miscellaneous
- Are Tax Credits or Tax Deductions Better?
- Who is Spiral
This article was fact-checked and verified by Katherine Varraveto, CPA. However, this article does not constitute tax advice and was written for educational purposes. For actual tax advice please consult your own CPA.
Around tax season, many Americans start to eat, sleep and dream, or maybe even have nightmares, about their taxes. And one question that looks for an answer yearly is: what can you claim on taxes?
As a certified bookkeeper with six years of experience working for a public accounting firm in tax preparation, I’ve put together a list of some common tax deductions and credits that can save you money on your taxes.
Due to the coronavirus pandemic, there have also been some recent changes to standard deductions and credits. So, exactly what can you claim on your tax return?
First, you need to know the difference between a deduction and a credit. A deduction will minimize your income that is subject to taxes while credits are subtracted directly from the amount of tax you owe.
The other important difference to note is between a standard deduction and itemized deductions.
• The standard deduction, based on how you file, is a fixed amount that reduces your taxable income.
• Itemized deductions are a list of eligible expenses used to reduce your adjusted gross income.
The key is to maximize your itemized deductions since the only way to claim itemized deductions is if the total of itemized deductions is larger than the standard deduction.
The best way to do this is to record all of your receipts on a monthly basis tracking the total amounts of items eligible to be itemized, also known as a tax-deductible expenses list.
In order to determine whether to take a standard deduction or to itemize, here are some deductions, credits, exclusions and some incentives that you will want to know.
Covid-19 Deductions and Credits
Here is a list of the pandemic’s deductions, credits, and even how to claim stimulus checks on your taxes if you missed out on some or all of the Economic Impact Payments.
1. Recovery Rebate Credit
If you haven’t received your Economic Impact Payment, you can claim your stimulus check on taxes.
If you did not receive any or all of your Economic Impact Payment, you can claim the Recovery Rebate Credit on line 30 of Form 1040.
2. Charitable Contribution Deduction
There is a tax break for donations, however, there was a change to the charitable contributions deduction due to a stimulus bill known as the CARES Act that passed during the pandemic.
Learn how much charity can you actually deduct from your taxes.
With this bill, you can deduct up to $300 of charitable cash donations made in 2020 whether you itemize or not. This is called an above-the-line deduction.
This can be claimed on line 10b of Form 1040. If you want to deduct more than $300, you must itemize on Schedule A, Itemized Deductions, where donations in the form of money or property are reported.
3. Sick Leave for Self-Employed Credit
If you were self-employed, came down with the coronavirus and were unable to work from April 1st through December 31st, 2020, you could be eligible to receive a refundable tax credit of up to $200 a day for the period out of work.
This credit was established due to the Families First Coronavirus Response Act (FFCRA).
More information regarding this credit is found on IRS Form 7202, Credits for Sick Leave and Family Leave For Certain Self-Employed Individuals .
4. Family Leave for Self-Employed Credit
For those of you who are self-employed and couldn’t work as a result of taking care of a family member with COVID-19, you could be eligible to claim this refundable credit.
Again, for more details, refer to IRS Form 7202 for more information.
Education Deductions and Credits
5. Student Loan Interest Deduction
If you have a student loan for yourself, spouse or dependent, you can deduct up to $2,500 of interest paid.
The deduction decreases when your modified adjusted gross income reaches a certain limit. The student loan interest deduction is claimed as an adjustment to your income on Form 1040.
You are not eligible for this deduction if you file married filing separately.
6. Tuition and Fees Deduction
Any tuition and/or books you paid for yourself, spouse or dependent, can be deducted up to $4,000 if your gross income is less than a certain amount. This deduction is claimed on Schedule 1 and IRS Form 8917, Tuition and Fees Deduction.
7. American Opportunity Tax Credit (AOTC)
If you paid for tuition, books and/or classroom supplies, you are eligible for a credit up to $2,500 per student.
These include expenses from the first four years of higher learning education. The credit phases out when your gross income reaches a certain limit.
This credit is found on Schedule 3 and on IRS Form 8863, Education Credits.
8. Lifetime Learning Credit (LLC)
If you paid any tuition or educational expenses on an undergraduate, graduate or professional degree course or job skill-related course, then you should be able to claim a credit of up to $2,000 per return.
Your gross income must be under a specified amount and you must have expenses of $10,000 or more to receive the full credit claimed on IRS Form 8863.
9. Educator Expenses Deduction
Teachers who teach K-12 and purchase classroom supplies, professional developmental courses and/or unreimbursed expenses to stop the spread of COVID-19 can deduct up to $250 of these expenses from their taxes on Schedule 1 of your 1040.
Military Deductions
10. Military Moving Expenses
If you’re an active-duty member of the U.S. Armed Forces and are stationed somewhere new, you can deduct moving expenses on IRS Form 3903, Moving Expenses, and on Schedule 1.
11. Military Reserve Travel Expenses
If you are a member of the Military Reserve Forces and traveled more than 100 miles for reserve services then you can deduct travel expenses as a business expense on Schedule 1.
Business Deductions
12. Self-Employment Deduction
Typically employers pay 50% of FICA taxes and employees pay the other half. When you’re self-employed, you pay the full 15.3% tax but you can then turn around and deduct half of it, similar to your employer portion, on Schedule 1.
13. Performing Artists Deduction
If you are a performing artist with an adjusted gross income of $16,000 or less, worked for multiple employers who paid you at least $200 in wages and have business expenses that are 10% or more of your gross income then you can deduct certain business expenses on Schedule 1.
14. Government Official Deduction
Government officials who are paid on a fee basis can deduct business expenses on Schedule 1.
15. Qualified Business Income (QBI) Deduction
If you had business income from a trust, estate, REIT dividend, a publicly traded partnership (PTP), a sole proprietorship, partnership or S-Corp, you may qualify for the Qualified Business Income Deduction that allows for up to a 20% deduction of your income.
This deduction can be claimed on Form 1040.
To learn more about business taxes and charities, check out “Business Tax Breaks For Donations”.
Retirement Deductions
16. Retirement Contributions
If you’re self-employed or own a small business, you can deduct contributions for retirement on Schedule 1.
17. IRA Contributions
Total annual contributions to your traditional IRA and Roth IRA combined cannot exceed $6,000 for 2020 and 2021 (if you are under 50) and $7,000 for 2020 and 2021 (if you are over 50). Contributions to Roth IRAs are made on an after-tax basis and are subject to modified adjusted gross income limits for individuals and married persons filing jointly (which are different for 2020 and 2021).
Absent special circumstances and not an early withdrawal, funds withdrawn from a traditional IRA only will be subject to state and federal income tax when withdrawn.
18. The Retirement Savings Contributions Credit
Taxpayers in a lower income tax bracket who made contributions to a SIMPLE, SEP, Roth or Traditional IRA, 403(b), 401(k), governmental 457(b) or ABLE account can deduct as much as up to 50% of their contributions on Form 8880, Credit for Qualified Retirement Savings Contributions, and on Schedule 3 of Form 1040.
There is a maximum credit limit depending on your filing status and AGI.
19. Excess Social Security and RRTA Credit
If you had multiple employers and had an excess of Social Security taxes withheld, you may try to recoup the excess on Schedule 3.
If you have just one employer that withheld too much, either the employer can adjust the amount or you can claim it on IRS Form 843, Claim for Refund and Request for Abatement.
Health and Medical Deductions
20. Health Insurance Deductions
If you’re self-employed and have paid premiums on yourself, spouse or child or children under 27, you can deduct health insurance, dental and long-term care premiums on Schedule 1.
21. HSA Contributions
If you made contributions to your health savings account (HSA) with money that was already taxed then you may be eligible to claim this deduction on Schedule 1.
22. Archer MSA Deduction
Self-employed and small business employees who carry a high deductible health plan (HDHP) can usually claim a deduction on Schedule 1.
23. Medical Expense Deduction
You may be able to claim the medical expense deduction if your medical expenses exceed 7.5% of your adjusted gross income (AGI). The medical expense deduction is an itemized deduction.
24. Health Coverage Tax Credit (HCTC)
Due to the Trade Adjustment Assistance (TAA) Program, taxpayers who have lost international trade jobs and certain individuals who had their pension plans taken over by the Pension Benefit Guaranty Corporation (PBGC) may be able to claim the Health Coverage Tax Credit on Form 8885.
25. Premium Tax Credit (PTC)
For taxpayers whose income falls within a certain degree of the federal poverty line may be eligible for the Premium Tax Credit which refunds your health insurance premiums.
This is a credit that can be received in advance and can be claimed on Form 8962. You will not qualify if you have health insurance through an employer.
Family and Dependent Credits
26. Child Tax Credit (CTC)
Taxpayers who pay for more than half of their child’s expenses with a specified annual income may receive a Child Tax Credit on Form 1040 of up to $2,000 per child, if that child or children are under the age of 17 and are claimed as dependent(s).
The credit will decrease once your modified adjusted gross income reaches a certain limit.
27. Additional Child Tax Credit (ACTC)
The Additional Child Tax Credit is actually a refund of up to $1,400 of the Child Tax Credit. If the Child Tax Credit brings the tax owed to below $0 for the year, you may claim the excess as a credit on Schedule 8812. This does not apply to any foreign income.
28. Other Dependent Credit (ODC)
Any dependents that do not fall under the Child Tax Credit or Additional Child Tax Credit can be claimed under the Other Dependent Credit.
You may deduct up to $500 for any dependent, such as a parent, on your 1040. There are income limits and a phase out when your AGI reaches a certain limit.
29. Child and Dependent Care Credit
Taxpayers who spend money on child care while looking for a job can claim this credit of up to $3,000 on up to 35% of your expenses on Form 2441 and Schedule 3.
The child care must come from someone other than your spouse or dependent.
30. Adoption Credit
Parents can claim an adoption credit for up to $14,300 for adoption costs per child on Form 8839. There is a phase out once your income reaches a certain limit.
31. Elderly or Disabled Credit
If you are over 65 or under 65 and receive disability benefits, then you may be able to receive a credit worth anywhere from $3,750 to $7,500 on Schedule R.
There are income limits based on your filing status.
Homeowner Deductions
32. Home Office Deduction
If you worked from home and used your home office exclusively for business, you can deduct a portion of your expenses such as utilities, homeowners insurance, property tax and mortgage interest that is directly related to your work on Form 8829 and Schedule C.
33. Residential Energy Efficient Property Credit
If you are a homeowner and are using wind energy, geothermal heat pumps, solar water heating, or solar electric then you can claim a deduction on Form 5695 and Schedule 3.
This is the IRS’s way of rewarding taxpayers who are using renewable energy.
34. Nonbusiness Energy Property Credit
The IRS also rewards taxpayers for making improvements to their home that increase energy efficiency on Form 5695 and Schedule 3. Some of these improvements include installing insulation, replacing your furnace, replacing windows, or adding an electric heat pump. These items must meet certain standards.
35. Mortgage Interest Deduction
If you have taken a loan out on your primary residence, the interest paid can be deducted on Schedule A if you itemize your deductions.
36. Sale of Home
This is considered an income exclusion rather than a credit or deduction.
If you resided and owned a home for two to five years before the sale, then any profit made up to $250,000, or $500,000 if married filing jointly, is tax free.
If you ended up with a loss you cannot take a deduction for the loss. The sale of the home is reported on Form 8949.
37. Mortgage Points Deduction
If you refinanced the mortgage on your home last year then you may be eligible to deduct the points over the life of the loan as an itemized deduction on Schedule A.
Personal Property Rental Deductions
38. Personal Property Rental Deduction
If you earn any income from renting out any of your personal property such as your car or rental property that is not used in any form of business then you can deduct rental expenses on Schedule 1.
39. Investment Property Interest Deduction
If you took out a mortgage to buy an investment property such as a rental, you can deduct the interest paid as an expense on Schedule E that you paid on the loan for the year.
40. Low-Income Housing Credit
The low-income housing credit on Form 8586 is for those who construct a low-income rental building. There are many qualifications to meet in order to receive this credit.
Tax Deductions and Credits
41. State and Local Tax (SALT) Deduction
Any state and local property taxes paid and income or sales tax (up to $10,000), not both, can be deducted on Schedule A if you itemize.
42. Foreign Tax Credit
If you worked in and paid taxes to a foreign country, you can claim a credit on Form 1116 and Schedule 3 if you paid at least $300 of income tax.
Vehicle Credits and Deductions
43. Electric Vehicle Credit
For those of you who have purchased a qualified plug-in electric car or motorcycle, whether it is used for business or personal use, you can take a credit on Form 8936 for up to $7,500, depending upon the model vehicle and the manufacturer.
44. Federal Fuel Tax Credit
If you have a vehicle that was used for a nontaxable purpose, you can receive a credit for the federal fuel taxes you paid. Use Form 4136 to get a refund for the excise tax.
45. Mileage Reimbursement Deduction
If you used your car for work and didn’t get reimbursed for your mileage then you can deduct 57.5 cents per mile (56 cents per mile for 2021) on Form 2106 and Schedule 1. The expense must exceed a percentage of your adjusted gross income.
Miscellaneous
46. Gambling Loss Deduction
Did you lose money at the casinos this year? You can deduct gambling losses on Schedule A as part of your itemized deductions if they are less than or equal to your winnings.
Any winnings must be included as income.
47. Jury Duty Deduction
If you were paid by your employer and you handed over your money for jury duty to your employer, you can deduct the jury duty pay on Schedule 1.
48. Olympic Medals
Did you happen to win any Olympic medals in 2020? Unlikely due to the pandemic but if somehow you did, you can deduct the value of the medal and any prize money on Schedule 1.
49. Whistleblower Deduction
If you report any tax violations to the IRS, they will reward you by letting you deduct attorney fees and court costs on Schedule 1. You must have received a whistleblower award from the IRS.
50. Earned Income Tax Credit (EITC)
If you fall into the low to moderate income tax bracket, you may be eligible for the Earned Income Tax Credit. In this case, the more children you have the better the credit. The range is $538 for no children to up to $6,660 for three children or more.
The credit will be given on Form 1040 but those with qualifying dependents will also need to complete Schedule EIC.
51. Federally Declared Disaster Deduction
Those who live in a federally declared disaster area can deduct the loss of home, vehicles or other personal property as an itemized deduction on Schedule A.
52. Bad Debt Deduction
If you loan money to someone and the money becomes uncollectible you can then deduct the unpaid debt on your taxes by completing Form 8949 as a loss.
53. Opportunity Zones
Opportunity Zones are more of an incentive than a deduction or credit. Introduced with the Tax Cuts and Jobs Act, investing in distressed areas throughout the U.S. to spur economic growth can result in some tax benefits. The benefits range from a temporary deferral of tax on capital gains to a permanent exclusion depending on how long the investments have been held.
Qualified opportunity zones are reported on Form 8949, Form 8996 and Form 8997.
54. Supplemental Unemployment Benefit Deduction
Those who were overpaid on their unemployment benefits and paid it back can deduct that overpayment on Schedule 1.
55. Reinvested Dividend Deduction
Reinvesting your dividend deduction is another benefit that is not a deduction or a credit but does reduce your tax liability.
Mutual fund dividends that are reinvested increase your tax basis which in turn reduces taxable capital gain. Capital gain and losses are reported on Form 8949.
Are Tax Credits or Tax Deductions Better?
Which is better? Tax credits or tax deductions? In general, tax credits are better because they directly reduce the amount of tax you owe dollar for dollar while tax deductions decrease your taxable income.
There are two types of tax credits: refundable credits and nonrefundable credits. The refundable credits result in a tax refund when they are greater than your tax liability whereas nonrefundable credits do not.
No matter how you look at it, both credits and deductions serve the same purpose, to decrease your tax liability.
Always remember to stay on top of the credits and deductions from year-to-year. Some tax rules will change and some will stay the same. Congress determines whether to extend credits and deductions or whether to let them expire.
Typically, the changes aren’t drastic but it’s important to educate yourself on all of the deductions and credits from year-to-year in order to save as much money as possible.
We hope that this article answered your yearly question of what can you claim on taxes and put your mind at ease for years to come.
Who Is Spiral?
Spiral is the pioneer of the Impact-as-a-Service™ platform that helps banks and financial institutions easily embed sustainability, social impact, ESG, and CSR into their businesses. Their mission is to empower 10,000+ U.S. financial institutions and millions of people to contribute to a better world.
