Nobody likes talking about taxes, but this year, you may be able to save some money and get a bigger refund. Understanding tax breaks will help you avoid leaving valuable money on the table. Learn how you can utilize and take advantage of these breaks this tax season.

What Are Tax Breaks?

Tax breaks, also known as tax incentives or tax relief, are provisions in the tax code that allow individuals to pay less in taxes or increase their refund. Tax breaks can take the form of deductions, credits, or exemptions, and they can be targeted toward certain expenses, activities, or populations. Taxpayers can often take advantage of multiple tax breaks to reduce their tax liability, increase their refund, or both.

Deductions are expenses that can be subtracted from the taxpayer's income, reducing the amount of taxes owed. Examples of deductions include mortgage interest, charitable contributions, and some medical expenses.

Tax credits, on the other hand, directly reduce the amount of tax owed by the taxpayer. In some cases, tax credits are refundable, meaning that if the credit exceeds the individual's tax liability, they can receive a refund for the difference.

Common Tax Breaks

There are a few tax breaks that most individuals are eligible for. It is essential to ensure you use these to your advantage and save as much as possible.

Standard Deductions

The standard deduction is a set amount that you can deduct from your taxable income, and it varies according to your filing status and the year you are filing for. The following are the standard deductions for 2023.

• Single: $13,850
• Married, filing separately: $13,850
• Married, filing jointly; qualified widow(er): $27,700
• Head of household: $20,800
• Over the age of 65 or blind: additional $1,500
• Over the age of 65 or blind and unmarried: additional $1,850

Child Tax Credit (CTC)

The CTC is directed towards people who have a dependant. The amount deducted for the 2022 tax year is $2,000 per qualifying dependent if your modified adjusted gross income is no more than $400,000 (married filing jointly) or $200,000 (all other filers).

To qualify for CTC, your dependent usually must meet the following requirements.

• Be under the age of 17 at the end of the year.
• Be your son, daughter, stepchild, eligible foster child, brother, sister, stepbrother, stepsister, half-brother, half-sister, or a descendant of one of these (for example, a grandchild, niece, or nephew).
• Provide no more than half of their own financial support during the year.
• Have lived with you for more than half the year.

Charitable Donations

One of the most popular tax breaks is charitable donations. If you donate to a recognized charity or non-profit organization, you can receive a tax deduction for the amount you donated. Be sure to keep your receipts and documentation of your donations, as deductions can only be claimed for donations made to qualified organizations.

Retirement Savings

Retirement savings also offer tax breaks for those who invest in individual retirement accounts (IRAs) or employer-sponsored plans such as 401(k)s. Contributions to these plans not only help taxpayers save for retirement, but they can also lower tax liabilities. Taxpayers should also be aware that the maximum contribution limits for these plans change from year to year, so it is important to stay up-to-date on the latest changes.

Education Expenses

The government recognizes the importance of education and encourages taxpayers to invest in their future by offering tax breaks for education expenses. Taxpayers can claim the Lifetime Learning Credit or the American Opportunity Tax Credit for higher education expenses. These credits can help offset the cost of tuition, fees, and books. It is important to keep in mind that there are income limitations for these credits.

Homeownership

One of the biggest tax breaks available to homeowners is the ability to deduct the interest paid on their mortgage loans. It may not sound like much, but it can add up to significant savings over time. In addition, if you make energy-efficient improvements to your home, you could also receive tax credits for these expenses. Not only will you be helping the environment, but you'll also be rewarded for your efforts when tax season rolls around.

Aside from these, homeowners can also deduct a variety of other expenses. This includes home equity loan or home equity line of credit (HELOC) interest, mortgage points, private mortgage insurance (PMI), and state and local tax (SALT) deductions.

Child And Dependent Care Tax Credit

If you're a working parent who has recently hired a caregiver for your child or dependent, you may qualify for the Child and Dependent Care Credit on your tax return. This credit can apply if you paid for someone to care for your child aged 12 or younger, your spouse, or any other person who cannot take care of themselves and lives with you for at least half of the year.

If you qualify, you can claim up to $3,000 for one person or $6,000 for two or more people in the tax year 2022. To qualify, you and your spouse must have earned income from a job, and the care must have been paid for so that you could work or look for work.

Conclusion

By taking advantage of these deductions and credits, you can potentially increase your tax refunds or reduce the amount of taxes you owe. With your returns going up and bills going down, you and your family will be able to save more and diminish the stress of tax season.