A tax deduction cuts the income you're taxed on, which can mean a lower bill. Deductions 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.
A tax credit cuts your tax bill directly. Tax credits are a dollar-for-dollar reduction to your 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.)
Knowing which deductions or credits to claim can be challenging. Luckily, we have this handy list of tax deductions and tax credits to take this year.
Student Loan Interest Deduction
Taxpayers with student loans can deduct up to $2,500 of interest incurred. You can also include interest via credit card debt that came from helping to pay for education. Loans qualify as long as you paid for them and they were for yourself, a spouse or a dependent.
For 2020, the deduction is phased out for taxpayers who are married filing jointly with AGI between $140,000 and $170,000 ($70,000 and $85,000 for single filers). The deduction is unavailable for taxpayers with AGI of $170,000 ($85,000 for single filers) or more. Married taxpayers must file jointly to claim the deduction.
The interest must be for a “qualified education loan,” which means debt incurred to pay tuition, room and board, and related expenses to attend a post-high school educational institution. Certain vocational schools and post-graduate programs also may qualify.
The interest must be on funds borrowed to cover qualified education costs of the taxpayer, his or her spouse or a dependent. The student must be a degree candidate carrying at least half the normal full-time workload. Also, the education expenses must be paid or incurred within a reasonable time before or after the loan is taken out.
It doesn’t matter when the loan was taken out or whether interest payments made in earlier years on the loan were deductible or not. And no deduction is allowed to a taxpayer who can be claimed as a dependent on another taxpayer’s return.
Tuition & Fees Deduction
Those who paid education expenses (namely tuition) for themselves, their spouses, or their dependents can deduct up to $4,000. You can only claim the deduction if your gross income is $80,000 or less for single filers and $160,000 or less for joint filers. You do not need to itemize to claim the tuition and fees deduction.
American Opportunity Tax Credit
The AOTC is worth up to $2,500 per student and is available for education expenses from your first four years of higher education. Qualifying education expenses include tuition, books and classroom supplies. You can include these expenses even if you didn’t pay them directly to the school. The credit begins to phase out once your gross income reaches $80,000 (for single filers) or $160,000 (for joint filers).
Lifetime Learning Credit (LLC)
You can claim the lifetime learning credit for tuition and similar expenses from undergraduate courses, in addition to graduate courses and professional degree courses. Unlike other education credits, the LLC also covers the cost of classes that help you learn or improve job skills. There’s no limit to how many years you can claim it. The LLC is only worth up to $2,000 per tax return and you must have at least $10,000 of expenses to receive the full credit. Your gross income must also be less than $68,000 if you’re a single filer, or $136,000 if you’re a joint filer.
Certain school teachers can deduct up to $250 for money they spent on classroom supplies or on professional development courses related to the curriculum they teach. You can qualify if you’re a K-12 teacher, counselor or principal. A teacher’s aide may also qualify if they worked in a school for at least 900 hours during a school year.
What Expenses Can Be Deducted?
Supplies must be “ordinary and necessary.” This means they're items commonly accepted and used in a classroom and your students benefited from them.
Some common deductible expenses include:
Computer equipment, software, and services
Supplementary materials used in the classroom
Health or physical education courses related to athletics
You can also deduct the costs of professional development courses you take—again presuming that no one reimburses you.
Moving Expenses for Members of The Military
You can deduct moving expenses on your taxes if you’re an active-duty member of the U.S. Armed Forces and you had to move because of a permanent change of station.
A permanent change of station includes:
A move from your home to your first post of active duty,
A move from one permanent post of duty to another, and
A move from your last post of duty to your home or to a nearer point in the United States. The move must occur within 1 year of ending your active duty or within the period allowed under the Joint Federal Travel Regulations.
Spouse & Dependents
If you are the spouse or dependent of a member of the Armed Forces who deserts, is imprisoned, or dies, a permanent change of station for you includes a move to:
The member's place of enlistment or induction
Your, or the member's, home of record, or
A nearer point in the United States.
If the military moves you to or from a different location than the member, the moves are treated as a single move to your new main job location.
Deductible Moving Expenses
If you move because of a permanent change of station, you can deduct the reasonable unreimbursed expenses of moving you and members of your household.
You can deduct expenses (if not reimbursed or furnished in kind) for:
Moving household goods and personal effects, and
Travel (See Below)
Moving household goods and personal effects. You can deduct the expenses of moving your household goods and personal effects, including expenses for hauling a trailer, packing, crating, in-transit storage, and insurance. You cannot deduct expenses for moving furniture or other goods you bought on the way from your old home to your new home.
Storing and insuring household goods and personal effects. You can include only the cost of storing and insuring your household goods and personal effects within any period of 30 consecutive days after the day these goods and effects are moved from your former home and before they are delivered to your new home.
(If you’re filing back taxes, this deduction was available to non-military members before 2018.)
Travel Expenses for Military Reserve Members
Members of the military reserve forces can deduct the cost of travel as a business expense if they travelled more than 100 miles to perform reserve services.
You can deduct the expenses of traveling (including lodging but not meals) from your old home to your new home, including car expenses and air fare. You can deduct as car expenses either:
Your actual out-of-pocket expenses such as gas and oil, or
The standard mileage rate of 17 cents a mile.
You can add parking fees and tolls to the amount claimed under either method. You cannot deduct any expenses for meals. You cannot deduct the cost of unnecessary side trips or lavish and extravagant lodging.
Business Expenses for Performing Artists
Low-income performing artists can deduct certain business expenses, such as costs necessary to complete a rehearsal. However, qualifying for this deduction is challenging. You must have an adjusted gross income of $16,000 or less; your business expenses must have been at least 10% of your gross income; you must have worked as a performing artist for multiple employers; and each employer must have paid at least $200.
You can deduct your alimony payments if your divorce agreement took effect in 2018 or earlier. The 2017 tax reform eliminated this deduction for all agreements that took effect in 2019 or later. To claim this deduction, you need to know how much alimony you paid, the Social Security number of the recipient and the date your agreement took effect.
Early Withdrawal Penalties From CD
If you paid any early withdrawal penalties for a savings account, namely a certificate of deposit (CD), you can deduct that penalty on your federal taxes. Check your copies of Form 1099-INT or Form 1099-OID to see how much you were charged for penalties, and then can claim the deduction on your 2020 tax return.
IRA Contributions Deduction
If you contributed to a traditional IRA with money you already paid income tax on, you may be able take the IRA deduction for the tax you paid. This includes any money you got from an employer who withholds income tax. Traditional IRAs are tax-advantaged, which means you don’t have to pay income tax on your savings or investments until you withdraw the money in retirement.
401(K) Contributions Deduction
The IRS doesn’t tax what you divert directly from your paycheck into a 401(k). For 2020 and 2021, you can funnel up to $19,500 per year into such an account. If you’re 50 or older, you can contribute up to $26,000. These retirement accounts are usually sponsored by employers, although self-employed people can open their own 401(k)s.
Contributions to HSAs are tax-deductible, and the withdrawals are tax-free, too, as long as you use them for qualified medical expenses. For 2020, if you have self-only high-deductible health coverage, you can contribute up to $3,550. If you have family high-deductible coverage, you can contribute up to $7,100 in 2020.
The Saver's Credit
This runs 10% to 50% of up to $2,000 in contributions to an IRA, 401(k), 403(b) or certain other retirement plans ($4,000 if filing jointly). The percentage depends on your filing status and income.
The Archer MSA Deduction
This deduction covers health care costs for self-employed individuals and small business employees who are covered by a high-deductible health plan (HDHP).
Jury Duty Pay
Taxpayers can deduct jury duty pay in certain situations. You must have been paid by your employer while you were completing jury duty, and then you must have given any pay you received from jury duty to your employer.
Repayment of Supplemental Unemployment Benefits
If you received an overpayment of unemployment benefits during the year, and you paid it back, you can deduct the amount of that overpayment on your taxes. Just make sure to take the deduction in the same year that you paid it back. You can still deduct it in later years, but the process is more of a hassle.
Deduction for Whistleblower Fees
This deduction is an incentive to help taxpayers detect and alert the IRS to tax law violations. The deduction can cover attorney fees and court costs you paid in connection with helping the IRS. To claim the deduction, you must have received an award from the IRS (known as a whistleblower award).
The Medical & Dental Expense Deduction
For your 2020 return you can deduct the amount of the total un-reimbursed allowable medical care expenses for the 2020 Tax Year that exceeds 7.5% of your Adjusted Gross Income or AGI.
For Example: If your AGI is $45,000 and you had $12,000 in medical expenses, you can deduct the medical expenses that were higher than $3,375 (7.5% of $45,000) — your full medical expense deduction would be $8,625 ($12,000 minus $3,375).
The SALT Deduction
You may deduct up to $10,000 ($5,000 if married filing separately) for a combination of property taxes and either state and local income taxes or sales taxes.
For those who are still likely to itemize, remember that the SALT deduction comprises three primary elements:
State and local property taxes: Typically, this includes taxes on the principal residence where you reside and any property taxes for a second home or land where you hope to eventually build a getaway.
State and local income taxes: These are the income taxes you must pay to the appropriate state and local tax authorities.
State and local sales taxes: Frequently, you must pay sales tax on goods and services you purchase in-state, with certain exceptions.
The SALT deduction is available for only for a combination of state and local property taxes and EITHER state and local income taxes or state and local sales taxes. In other words, you can’t count both income and sales taxes in the compilation.
The Mortgage Interest Deduction
If you have a mortgage, the mortgage interest deduction may allow you to deduct your interest, including your private mortgage insurance payments. Unfortunately, you will need to itemize to claim this deduction, and most people don’t need to itemize after the 2017 tax reform.
Other Income Taxes You’ve Already Paid
If you’ve already paid other forms of income tax, like to a foreign government, you may be able to deduct them on Schedule A. This itemized deduction may also cover certain payments you made for the generation skipping tax (GST).
Foreign Tax Credit
If you cannot take the itemized deduction for foreign taxes you paid, you may still be able to get a credit for those payments. You can generally claim the credit if you paid income tax of at least $300 during the year to either a foreign country or a U.S. territory.
Interest for a Loan on an Investment Property
If you bought an investment property by taking out a loan, you can deduct the interest you pay on that loan. This deduction can apply to loans on other investment properties, but not on stocks, securities or anything that generates tax-exempt interest (like certain bonds). You need to itemize to take this deduction.
Charitable Contribution Deduction
As part of the Coronavirus Aid, Relief and Economic Security (CARES) Acts, individuals and corporations that itemize can deduct much greater amounts of their contributions. Individuals can elect to deduct donations up to 100% of their 2020 AGI (up from 60% previously). Corporations may deduct up to 25% of taxable income, up from the previous limit of 10%. The new deduction is for gifts that go to a public charity.
Casualty & Theft Losses From a Federally Declared Disaster
If you lost your home, vehicles or other personal property in a federally declared disaster, you may be able to deduct the value of those losses. You can qualify for the deduction whether the property was completely destroyed, significantly damaged or stolen.
Such disasters include:
*To find a current list of federally declared disasters, click here.
If you incurred losses due to a recent federally declared disaster but failed to declare those losses on a past return, you may still do so by filing an amended return (going back up to three tax years).
Did you have significant gambling losses during the year?
Gambling losses and expenses are deductible only to the extent of gambling winnings. So, spending $100 on lottery tickets isn’t deductible — unless you win, and report, at least $100, too. You can’t deduct more than the amount you win.
Child Tax Credit (CTC)
The child tax credit is for taxpayers who pay the majority of care for at least one child under the age of 17. The credit is worth up to $2,000 per child and you must have an annual income of at least $3,000 to qualify. The maximum credit you can get will start to decrease when your modified adjusted gross income reaches a certain level — $400,000 for joint filers and $200,000 for all other filing statuses.
Additional Child Tax Credit (ACTC)
The ACTC can be taken in addition to the CTC, and it just allows you to receive a refund if the CTC brings your tax liability — the total income tax you owe for the year — below $0. The refund for the ACTC in this situation is up to $1,400. The same income requirements as the CTC apply, but you are disqualified from getting the ACTC if you have any foreign income.
Credit For Other Dependents (ODC)
This credit allows you to deduct up to $500 for each dependent who you cannot claim with either the CTC or ACTC (aka the Family Tax Credit). Paying for the care of a parent will usually qualify. You can only take the ODC if you are within the income limits. The credit starts to phase out once your AGI reaches $400,000 if your married filing jointly, or $200,000 if you use any other filing status.
Child & Dependent Care Credit
Working parents can claim this credit for costs they spent on child care while they actively looked for a job. You can include the cost of a housekeeper, maid, cook, cleaner, or babysitter. However, the credit is only worth up to 35% of your expenses. The maximum credit is $3,000 if you have one dependent under 13, and $6,000 for two or more dependents. You can get necessary information from your care provider with Form W-10. The care provider doesn’t qualify if they’re your spouse or dependent.
For the 2020 tax year, this item covers up to $14,300 in adoption costs per child. However, if your adoption expenses are below $14,080, you can only claim the amount of your expenses. If you adopt a child with special needs, you can claim the full $14,300, regardless of your adoption expenses.
Qualified Expenses, including adoption fees, attorney and court costs, travel expenses, and other expenses related to adopting a child, are eligible for this credit.
Earned income tax credit (EITC)
The earned income tax credit is available to low-income and moderate-income taxpayers, with the highest credits going to taxpayers with dependents.
A dependent can qualify if they’re a minor, under 24 and in college, or if they are living with permanent and total disability. For the 2020 tax year, the earned income credit ranges from $538 to $6,660 depending on your filing status and how many children you have.
You don't have to have a child in order to claim the earned income credit. The earned income tax credit doesn't just cut the amount of tax you owe — the EIC could also score you a refund, and in some cases a refund that's more than what you actually paid in taxes.
Premium Tax Credit (PTC)
The PTC is a type of health insurance subsidy that refunds your payments for health insurance premiums. To be eligible, your projected household income must be between 100% and 400% of the federal poverty line for your family size.
Unlike many other credits, you can also choose to receive it in advance to help you pay your premiums each month. What you take in advance is called the advance premium tax credit (APTC). The APTC is only available if you get a plan through the Obamacare marketplace. It’s important to note that you won’t qualify if you have health insurance through an employer.
Health Coverage Tax Credit (HCTC)
Workers may be able to claim the HCTC if they lost their jobs due to the negative effects of global trade. Such workers are eligible to receive HCTC benefits under the Trade Adjustment Assistance (TAA) Program, which covers workers who’ve lost international trade jobs. Workers between 55 and 64 years old can also qualify if their pension plans were taken over by the Pension Benefit Guaranty Corporation (PBGC).
The HCTC credit covers 72.5% of health insurance premiums, including for COBRA coverage, a program that allows workers to keep their employer’s health insurance plan after leaving the job.
Credit for The Elderly or The Disabled
People who are 65 or older and those who have retired early due to disability can be eligible for a federal tax credit. The Credit for the Elderly or the Disabled reduces federal income taxes related to disability income, but several qualifying rules apply.
A taxpayer must be a U.S. citizen or resident alien who:
Has reached age 65 before the last day of the tax year
Has retired on disability before the last day of the tax year and was permanently and totally disabled when they retired
Is under age 65 at the last day of the tax year but who retired on permanent and total disability, received taxable disability income, and has not yet reached mandatory retirement age as of January 1 of the new tax year
Please note there are income limits to this credit based on your filing status.
Residential Energy Efficient Property Credit
Taxpayers may be able to claim this tax credit for the cost of installing and using certain types of renewable energy for their home. Eligible energy costs include those for solar electric, solar water heating, fuel cells, wind energy, and geothermal heat pumps.
Non-Business Energy Property Credit
This credit is available for certain home improvements you made to your home in order to increase energy efficiency. If you’ve made home improvements like installing insulation to reduce heat loss, got a new furnace or heater, added an electric heat pump to heat water, upgraded a stove to burn biomass fuel to heat your home or water, or even redid your exterior windows or doors. Certain products may need to meet performance or quality standards to qualify, so keep an eye out for that.
Credit For Electric Plug-In Vehicles
You can qualify for a tax credit if you purchased a qualified plug-in electric vehicle during the year for up to $7,500. This is available for electric cars and motorcycles, whether for business or personal use.
Credit for Federal Fuel Taxes
Did you use a vehicle for a nontaxable purpose, such as for farm work or off-highway business use?
The government taxes gasoline, diesel fuel, kerosene, alternative fuels and some other types of fuel. However, there are certain uses of these fuels that are considered to be nontaxable.
If you are an individual or business that purchases fuel for one of these reasons, you can claim a credit on your tax return for the tax paid.
For complete instructions, see Publication 510.
The tax reform law also significantly narrowed the mileage tax deduction for moving expenses. That can now only be claimed by active-duty military members who are relocating because of new orders. Still, a mileage deduction exists for certain situations.
Under the new tax code, you can claim a mileage deduction for:
Business mileage for the self-employed
Mileage related to medical appointments
Mileage incurred while volunteering for a nonprofit
To avoid losing the deduction during an audit, travel logs should be detailed.
Credit for Excess Social Security and RRTA Tax Withheld
For the most part, employers are supposed to take out 6.2% of your social security wages up to $8,239.80. However certain government employees and railroad employees don’t have to pay Social Security tax from their paychecks because they contribute to other types of pensions. This credit may allow you to recoup the excess you paid.
Although if your employer withheld too much Social Security tax, you won’t be able claim this credit because your employer should adjust the excess for you. If your employer does not adjust the overcollection, you can use Form 843 to claim a refund.