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.