It’s tax season once again – but don’t let your anxiety set in! With the right deductions and tax credits, you could significantly reduce your taxable income or increase your refund. This listicle will explore the top 10 tax write-offs to maximize your savings in 2024. Buckle up, taxpayers!
1. Child Tax Credit
This refundable credit puts hard-earned cash back into parents’ pockets, helping offset the monumental costs of raising children.
- Up to $2,000 per child under age 17
- Phases out at higher incomes – check the eligibility rules!
- Benefits working families including those who owe no income tax
- Receiving this credit now means a smaller refund later, but why wait? Apply it to daily expenses like groceries, childcare, school expenses, etc.
2. Child and Dependent Care Credit
If you pay for childcare to enable you to work, this credit can return up to 20% to 35% of those expenses.
- Covers up to $6,000 in expenses for 2+ children or up to $3,000 for one child
- Applies to daycare, preschool, before/after school care, summer camps, and more
- Reduces your tax bill dollar-for-dollar, unlike deductions which just reduce taxable income
That’s up to $6,000 extra cash back for families!
3. 529 College Savings Plans
The Powerful Potential of 529 Plans
These state-sponsored, tax-advantaged savings plans help you put money aside for a child’s future college costs.
Benefits include:
- Savings grow federal tax-free and usually state tax-free too
- Some states offer tax deductions for contributing
- Funds can be used tax-free at eligible colleges nationwide for expenses like tuition, fees, room and board
- Useful estate-planning tool to gift funds to grandchildren
Contributing even $100/month can make college more affordable.
4. Education Tax Credits
Tax credits directly reduce your tax bill, offering savings for adults upping their education credentials too.
Navigating the Navigable: A Deep Dive into the 2024 Tax Code
- American Opportunity Tax Credit:
- Reduces tax bill by up to $2,500 per eligible student per year
- Covers 100% of the first $2,000 in tuition/fees plus 25% of the next $2,000
- Good for a student’s first 4 years of college
- Lifetime Learning Credit
- Lesser-known but also valuable perk
- Chop 20% off tuition/fees up to $10,000 in one tax year
- Applies to vocational schools, grad programs – you name it!
Continue your education and continue saving money by leveraging these credits.
5. Mortgage Interest Deduction
The Heavy Weight of Taxes: How Different Tax Burdens Impact Americans Across State Lines
This popular deduction allows homeowners to reduce their taxable income based on mortgage interest paid.
- Deduct interest on up to $750,000 ($375,000 if married filing separately) in new mortgage debt or $1 million existing debt
- Especially valuable in high property tax areas like New Jersey (avg 2.47% tax rate) vs. Hawaii (0.29% on average) [1]
- Also deduct interest paid on home equity loans up to $100,000
| State | Avg. Effective Property Tax Rate |
|---|---|
| Hawaii | 0.29% |
| South Dakota | 0.86% |
| New Jersey | 2.47% |
6. Property Tax Deduction
This pairs well with the mortgage deduction above.
- Itemizers can deduct state and local property taxes paid
- No dollar limit but rules vary in some high-tax areas
- Taxes on improvements also count, like a new roof
Home-related deductions offer huge potential savings!
7. Medical Expense Deduction
Deduct qualified medical expenses exceeding 7.5% of your adjusted gross income if you itemize.
- Doctor and hospital bills
- Long-term care expenses
- Prescriptions, glasses, dental work
- Medical miles driven and parking fees
- Health insurance premiums don’t count
With healthcare costs high, this deduction brings relief.
8. Health Savings Account Contributions
Contribute pre-tax income to an HSA and invested funds can grow tax-free.
- HSAs offer a triple tax advantage
- Contributions reduce your taxable income
- Balances grow tax-free
- Withdrawals for medical expenses aren’t taxed
- Funds don’t expire so HSAs can facilitate retirement savings
- High deductible health plans required to contribute
9. 401(k) Contributions
These popular employer-sponsored plans help you save for retirement and lower your current taxable income.
- Pre-tax contributions reduce your taxable pay
- Employer matches amplify your retirement savings
- Earnings grow tax-deferred, multiplying the benefits
Max out contributions to maximize tax and retirement savings.
10. Traditional IRA Contributions
Much like 401(k) plans, funding a traditional Individual Retirement Account lowers your current tax bill.
- Up to $6,500 in contributions (~$7,500 if 50+) may be tax deductible
- Deduct now, pay taxes on withdrawals later in retirement
- Another tool for tax-deferred retirement savings
The key is utilizing deductions strategically while minimizing overall tax liability. Consulting a tax preparer illuminates the best moves for your personal financial situation. With the right planning, you can take control of your taxes!
Footnotes
- ATTOM 2022 Property Tax Analysis ↩
For more content, check out Navigating the Navigable: A Deep Dive into the 2024 Tax Code
Disclaimer: The information provided in this blog post is for informational purposes only. It is not a substitute for professional advice. Always seek the advice of a qualified professional.
