Claim these common tax deductions to reduce your tax bill or increase your tax refund. Taxpayers have seen their options for tax deductions whittled down in recent years, as the vast majority of taxpayers opt for the standard deduction – which doubled in 2018 – rather than itemized deductions. Still, deductions are a powerful way to lower your tax bill.
A deduction cuts the income you’re taxed on, which can mean a lower bill. A credit cuts your tax bill directly. Tax deductions and tax credits can be huge money-savers — if you know what they are, how they work, and how to pursue them. Here’s a cheat sheet.
What is a tax deduction? A tax deduction lowers your taxable income and thus reduces your tax liability. You subtract the amount of the tax deduction from your income, making your taxable income lower. The lower your taxable income, the lower your tax bill.
What is a tax credit?
A tax credit is a dollar-for-dollar reduction in your actual tax bill. A few credits are refundable, which means if you owe $250 in taxes but qualify for a $1,000 credit, you’ll get a check for the difference of $750. (Most tax credits, however, aren’t refundable.)
As the simplified example in the table shows, a tax credit can make a much bigger dent in your tax bill than a tax deduction.
|A $10,000 tax deduction||…or a $10,000 tax credit?|
|Minus tax deduction||($10,000)|
|Minus tax credit||($10,000)|
|Your tax bill||$22,500||$15,000|
How to claim IRS tax deductions in 2022
Generally, there are two ways to claim tax deductions: Take the standard deduction or itemize deductions. You can’t do both.
The standard tax deduction for 2021 and 2022 – The standard deduction basically is a flat-dollar, no-questions-asked reduction in your adjusted gross income (AGI). The amount you qualify for depends on your filing status.
|Filing status||2021 tax year||2022 tax year|
|Married, filing jointly||$25,100||$25,900|
|Married, filing separately||$12,550||$12,950|
|Head of household||$18,800||$19,400|
People over age 65 or who are blind get a bigger standard deduction.
Itemizing lets you cut your taxable income by taking any of the hundreds of available tax deductions you qualify for. The more you can deduct, the less you’ll pay in taxes.
Should you itemize or take the standard deduction?
Here’s what the choice boils down to:
- If your standard deduction is less than the sum of your itemized deductions, you probably should itemize and save money. Beware, however, that itemizing usually takes more time, requires more forms and you’ll need to have proof that you’re entitled to the deductions.
- If your standard deduction is more than the sum of your itemized deductions, it might be worth it to take the standard deduction (and the process is faster).
Note: The standard deduction has gone up significantly in recent years, so you might find that it’s the better option for you now even if you’ve itemized in the past. Your tax software or tax advisor can run your return both ways to see which method produces a lower tax bill.
Most popular tax deductions and tax credits for individuals in 2022
There are hundreds of deductions and credits out there. Here’s a drop-down list of some common ones, as well as links to our other content that will help you learn more.
- Child tax credit
- Child and dependent care tax credit
- American opportunity tax credit
- Lifetime learning credit
- Student loan interest deduction
- Adoption credit
- Earned income tax credit
- Charitable donations deduction
- Medical expenses deduction
- Deduction for state and local taxes
- Mortgage interest deduction
- Gambling loss deduction
- IRA contributions deduction
- 401(k) contributions deduction
- Saver’s credit
- Health savings account contributions deduction
- Self-employment expenses deduction
- Home office deduction
- Educator expenses deductionResidential energy credit