Presented by: EWM Tax Solutions
Read Time: 4 MIN
By May 20, 2022, over 145 million taxpayers had filed their federal income tax returns.1 And they all made decisions about deductions and credits – whether or not they realized it.
When you take the time to learn more about how it works, you can put the tax code to work for you.
As tax credits are subtracted from the actual tax liability, they potentially have greater leverage in reducing your tax burden than deductions. Tax credits typically have phase-out limits, so consider consulting a tax professional.
Here are a few tax credits that you may be eligible for: The Child Tax Credit is a federal tax credit for families with dependent children under the age of 17. The maximum credit is $2,000 per qualifying child, depending on your income level.2
The American Opportunity Credit provides a tax credit of up to $2,500 per eligible student for tuition costs for four years of post-high-school education.3
Those who have to pay someone to care for a child (under 13) or other dependent may be able to claim a tax credit for those qualifying expenses. The Child and Dependent Care Credit provide up to $4,000 for one qualifying individual or up to $8,000 for two or more qualifying individuals.4
Deductions are subtracted from your income before your taxes are calculated. Thus, it may reduce the amount of money you are taxed and, by extension, your eventual tax liability. Deductions typically have phase-out limits like tax credits, so consider consulting a tax professional.
Under certain limitations, contributions made to qualifying charitable organizations are deductible. In addition to cash contributions, you can deduct the fair market value of any property you donate. And you can write off out-of-pocket costs incurred while working for a charity.5
Suppose specific qualifications are met that were updated in the 2017 Tax Cuts and Jobs Act. In that case, you can deduct the mortgage interest you pay on loan secured for your primary or secondary residence.6
Amounts set aside for retirement through a qualified retirement plan, such as an Individual Retirement Account, may be deducted. The contribution limit is $6,000, and if you are age 50 or older, the limit is $7,000.7
In most circumstances, once you reach age 73, you must take the required minimum distributions from a Traditional Individual Retirement Account (IRA) or qualified retirement plan. Withdrawals are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty.
You may be able to deduct the amount of your medical and dental expenses that exceed 7.5% percent of your adjusted gross income.8
Understanding credits and deductions is a critical building block to making the tax code work for you.
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1IRS.gov, 2022
2Investopedia.com, June 24, 2022
3IRS.gov, 2022
4IRS.gov, 2022
5Investopedia.com, March 23, 2022
6Investopedia.com, March 23, 2022
7Investopedia.com, June 29, 2022
8IRS.gov, 2022
EWM does not offer tax or legal advice. EWM Tax Solutions and Executive Wealth Management are separate but affiliated entities. The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security. Copyright 2023 FMG Suite.
