Every year, millions of Americans miss out on valuable tax breaks simply because they are not aware of them. Understanding these deductions and credits can significantly reduce your tax liability, putting more money back into your pocket. Here are six commonly overlooked tax breaks that could benefit you this tax season.
1. Retirement Savings Contributions Credit (Saver’s Credit)
The Saver’s Credit is designed to encourage low- to moderate-income earners to save for retirement. If you contribute to a retirement plan like a 401(k) or IRA, you may qualify for this credit. The credit can be worth up to $1,000 ($2,000 for married couples) and is based on your filing status and adjusted gross income. This credit is non-refundable, meaning it can reduce your tax bill to zero but won’t result in a refund.
Many people miss this credit because it’s not automatically calculated by tax software. To take advantage of it, you must file Form 8880 along with your tax return. Keep in mind that the credit is in addition to the tax deduction you get for contributing to your retirement account, making it a double benefit.
2. Student Loan Interest Deduction
If you are repaying student loans, you may be eligible to deduct the interest paid on these loans. The Student Loan Interest Deduction allows you to deduct up to $2,500 of interest paid each year. This deduction can be taken regardless of whether you itemize your deductions or not, making it accessible to more taxpayers.
To qualify, your modified adjusted gross income must be below a certain threshold, which changes annually. Additionally, you must have been legally obligated to pay the interest on the loan, and the loan must have been used for qualified education expenses. Even if you don’t receive a Form 1098-E from your lender, you should still keep track of your payments to ensure you claim the full deduction.
3. Earned Income Tax Credit (EITC)
The Earned Income Tax Credit (EITC) is a significant benefit for low to moderate-income working individuals and families. The amount of the credit depends on your income, filing status, and number of qualifying children. For some, it can be worth up to $6,935, making it one of the most substantial credits available.
Many eligible taxpayers miss out on the EITC because they believe they don’t qualify or don’t file a tax return. It’s crucial to check the IRS guidelines each year, as income limits and eligibility requirements can change. Even if you’re not required to file a return, you should do so to claim the EITC if you qualify.
4. Lifetime Learning Credit
The Lifetime Learning Credit offers a valuable tax break for those pursuing education beyond high school. It provides a credit of up to $2,000 per tax return, not per student, for qualified tuition and related expenses. This credit is available to students enrolled in an eligible educational institution, regardless of the number of courses taken.
Unlike other education credits, the Lifetime Learning Credit is available for an unlimited number of years, making it an excellent option for lifelong learners. However, there are income restrictions, and the credit is non-refundable. To claim this credit, you will need to file Form 8863 with your tax return.
5. State Sales Tax Deduction
Taxpayers who live in states without an income tax can benefit from the State Sales Tax Deduction. This deduction allows you to deduct the amount of sales tax paid during the year, providing a benefit similar to the state income tax deduction available to others.
To claim this deduction, you can either keep receipts of all sales tax paid or use the IRS’s optional sales tax tables based on your income level. This deduction can be particularly advantageous if you’ve made significant purchases, such as a car or home renovation, where sales tax can add up quickly. It’s important to compare this deduction with the state income tax deduction to see which offers the greater benefit.
6. Health Savings Account (HSA) Contributions Deduction
Contributions to a Health Savings Account (HSA) are tax-deductible, providing a dual benefit of reducing your taxable income while allowing you to save for medical expenses. For 2023, individuals can contribute up to $3,850, and families can contribute up to $7,750.
One of the unique advantages of an HSA is that contributions, earnings, and withdrawals for qualified medical expenses are all tax-free. This triple tax advantage makes HSAs an attractive option for those with high-deductible health plans. To maximize this benefit, consider making contributions directly through payroll deductions if your employer offers this option, as it allows you to save on FICA taxes as well.
Julian Harrow specializes in taxation, IRS rules, and compliance strategy. His work helps readers navigate complex tax codes, deadlines, and reporting requirements while identifying opportunities for efficiency and risk reduction. At The Daily Overview, Julian breaks down tax-related topics with precision and clarity, making a traditionally dense subject easier to understand.
