Filing your taxes for the first time can be overwhelming, but knowing about the deductions and credits available to you can help you maximize your refund. Many taxpayers leave money on the table simply because they aren’t aware of the tax benefits they qualify for. The IRS reported that more than $1 billion in refunds went unclaimed last year. To avoid missing out on money you’re entitled to, take the time to research deductions and credits before filing your return.
Here are some of the most common tax deductions and credits that new filers should know about to boost their refund:
Tax Credits: Direct reductions to your tax bill
Tax credits are powerful tools that directly reduce the amount of tax you owe. Unlike deductions, which lower your taxable income, tax credits provide dollar-for-dollar reductions to your tax bill. Some credits are even refundable, meaning that if your credit amount is larger than your tax owed, you may receive the difference as a refund.
- American Opportunity Tax Credit (AOTC): If no one else claims you as a dependent, you may qualify for this credit of up to $2,500 for expenses paid during your first four years of college. This credit applies to tuition, required fees, and course materials. Additionally, 40% of the credit (up to $1,000) is refundable.
- Earned Income Tax Credit (EITC): Designed to help low- to moderate-income workers, this credit could be worth up to $7,830 depending on your income and number of dependents. For example, if you are a single filer with no dependents and earned less than $18,591, you may qualify for a credit of up to $632. If you have three or more dependents and made less than $59,899, you may qualify for the maximum credit amount. Be sure to check the IRS website for specific credit amounts based on your filing status.
- Lifetime Learning Credit (LLC): If no one else claims you as a dependent, you may be eligible for a credit of up to $2,000 per tax return for expenses related to post-secondary education or career development courses. Unlike the AOTC, there is no limit on the number of years you can claim this credit.
- Saver’s Credit: If you contributed to a traditional or Roth IRA or another retirement savings account, you may qualify for this credit. Depending on your income level, the credit covers 50%, 20%, or 10% of your contributions, encouraging lower-income individuals to save for retirement.
Income
Tax Deductions: Lowering your taxable
Tax deductions reduce your taxable income, which in turn lowers the amount of taxes you owe. The more deductions you qualify for, the less income the IRS will tax.
- Student Loan Interest Deduction: If you made payments on student loans in 2024, you may be able to deduct up to $2,500 in interest payments from your taxable income. This deduction is particularly valuable for recent graduates who are still paying off student debt.
- Standard Deduction: Most taxpayers choose to take the standard deduction, which is a set amount that reduces your taxable income. The IRS has set the standard deduction amounts for 2024 as follows:
- $14,600 for single filers or married individuals filing separately
- $29,200 for married couples filing jointly or qualifying surviving spouses
- $21,900 for heads of household
- If your total itemized deductions do not exceed these amounts, taking the standard deduction is the best option.
- Deductible Expenses: You may be able to deduct contributions to an IRA or health savings account (HSA). Additionally, if you use part of your home or vehicle for business purposes, you may qualify for a deduction, but specific criteria must be met. Simply working from home does not automatically qualify you for a home office deduction.
- Itemized Deductions: If you have significant expenses in specific categories, you might benefit from itemizing your deductions instead of taking the standard deduction. Common itemized deductions include charitable donations, mortgage interest, and even gambling losses, including sports bets.
Get the refund you deserve
Tax season can be confusing, but understanding the deductions and credits available to you can lead to a larger refund. Take the time to research your eligibility, and don’t hesitate to seek help from a tax professional if you’re unsure. By maximizing your deductions and credits, you can ensure you’re getting back every dollar you’re entitled to.
