With all the tax law — and life — changes over the past few years, it’s easy to overlook tax breaks that could be worth hundreds of dollars or more.
Several popular breaks from expanded pandemic benefits have expired or returned to regular levels, but the good news is the IRS announced some new ones for tax year 2022.
And you might be eligible for different tax credits or deductions if you’ve had a recent life change. For example, perhaps your income dropped in 2022 or you retired, started a new job, did some freelance work, took continuing education classes, paid for child care or had out-of-pocket medical expenses.
Here are some frequently overlooked tax credits and deductions — learn now how to make the most of them for tax year 2022.
[Read: How to Get the Biggest Tax Refund This Year.]
Tax Break for Summer Camp
The IRS significantly expanded the child and dependent care tax credit in 2021, boosting it to $4,000 for one child and $8,000 for two or more children. Although the break is back to its usual level for tax year 2022, this credit can still reduce your tax liability by more than a thousand dollars if you pay for child care while you work.
“The big changes for 2021 have been reversed, but the credit is still available,” Mark Steber, chief tax information officer for Jackson Hewitt Tax Services, says. The credit is now worth up to $1,050 for one child or $2,100 for two or more.
Many child-related expenses qualify for the credit. You can count the cost of day care, preschool, nanny services, before- and after-school care and even the cost of summer day camp for children under 13 while you and your spouse work or look for work (overnight camps don’t qualify).
You can also claim the credit for other qualified dependents — which might include parents or grandparents — or outside day care for those you can’t leave alone, Steber says.
The credit is now worth as much as 35% of up to $3,000 in eligible child care expenses for one child under 13 and up to $6,000 for two or more children.
That percentage shrinks as your income rises but there is no maximum income limit to qualify.
“Anyone who works and pays for day care could be eligible regardless of income,” Steber says. If your adjusted gross income is more than $43,000 the credit is worth 20% of your eligible child care expenses.
For more information, see IRS Publication 503, Child and Dependent Care Expenses.
Tax Credit for College Classes at Higher Income Levels
You don’t need to be a full-time student to get a tax break for taking college classes. You can claim the lifetime learning credit for undergraduate or graduate classes, certificate programs or continuing education classes at eligible educational institutions even if you aren’t working toward a degree.
The credit is worth 20% of up to $10,000 in qualified expenses, with a maximum of $2,000 per tax return. “Qualified expenses include tuition and course materials, fees and course materials included in tuition, plus the cost of books, computers and software necessary for the course,” Steber says.
The IRS also significantly bumped the income limit for qualifying for 2021 and future years, Mark Luscombe, principal analyst with Wolters Kluwer Tax & Accounting, says.
Now it matches the income limits to qualify for the American opportunity tax credit, which can cut your tax liability by up to $2,500 for each eligible student who is in their first four years of college (you need to be at least a half-time student to qualify).
To qualify for either credit, your income must be less than $180,000 if married filing jointly or $90,000 for single filers. The size of the credit starts to phase out for married couples earning more than $160,000 or others earning more than $80,000.
For more information, see IRS Publication 970 Tax Benefits for Education.
Bonus Credit for Savers
The retirement saver’s tax credit is one of the most frequently overlooked breaks, and it can be worth up to $1,000 for single filers and $2,000 for married couples filing jointly. To qualify, you must meet the income requirements and contribute to a 401(k), 403(b), traditional or Roth IRA or other retirement-savings plan, even if you’re already getting a tax break for those contributions.
“The tax benefits of saving in a tax-deferred or tax-advantaged retirement account are well-known, and it almost seems inconceivable that you can get an additional tax benefit in the form of a tax credit,” Catherine Collinson, CEO and president of nonprofit Transamerica Institute and Transamerica Center for Retirement Studies, says.
“The saver’s tax credit may sound too good to be true,” she says. In a recent survey, her organization found that less than half of U.S. workers were aware of the credit — and people with lower incomes, who were more likely to qualify for the credit, were even less likely to know about it.
To qualify for the credit, your adjusted gross income must be less than $34,000 in 2022 ($36,500 in 2023) for single tax filers, $51,000 ($54,750 in 2023) if filing as head of household and $68,000 ($73,000 in 2023) for married filing jointly. You must be 18 or older, and no one can claim you as a dependent on their tax return.
The credit is worth 10%, 20% or 50% of up to $2,000 in retirement savings contributions for individuals or $4,000 for married couples — the lower your income, the larger the percentage. Even if you didn’t make a contribution to your 401(k) or 403(b) last year, you can still make 2022 IRA contributions until the tax-filing deadline on April 18, 2023. For more information, see the IRS Saver’s Credit fact sheet.
It can be easy to overlook this break if you’re just getting started in your career and are making your first contributions to a 401(k) at work.
“For those who aren’t yet saving, this could be just the little nudge to help them get started,” Collinson says. “Every bit counts, especially over the long term, which is what saving for retirement is all about.”
You may also not realize you’re eligible for the break if your income was always above the cutoff in the past but you’re now semi-retired, you were unemployed or furloughed for a few months or your employer reduced your work hours.
“There have been so many disruptions in employment over the last few years, more people may be eligible even if they didn’t qualify in the past,” Collinson says.
[See: 10 Tax Breaks for People Over 50.]
Tax-Deductible Savings for Your Side Gig
You can make tax-deductible contributions to a solo 401(k) or simplified employee pension if you’re self-employed, and you don’t need to be a full-time business owner to qualify — you can even contribute if you have some freelance income on the side.
“The solo 401(k) is helpful because it allows self-employed individuals to make a contribution of up to $20,500 in salary deferral for 2022 plus up to $6,500 for people age 50 or older, plus an employer contribution that is a percentage of their compensation,” Patrick Carney, certified financial planner in Lancaster, Pennsylvania, says.
Since self-employed people are both the employer and the employee, they get to make both parts of the contribution — with a maximum of $61,000 for 2022 ($67,500 if you’re 50 or older and making catch-up contributions).
The solo 401(k) salary deferral limits rise to $22,500 for 2023 ($30,000 if 50 or older) with total contributions of $66,000 ($73,500 if 50 or older making catch-up contributions).
Keep in mind that you have until the April 18, 2023, tax-filing deadline to make your 2022 contributions.
Your contributions can’t be more than your self-employed income for the year. If, for example, you earned $5,000 from your freelance gig in 2022, you can contribute the full amount to a solo 401(k). Your contributions are tax deductible and the money grows tax-deferred for retirement. The contribution may be reduced, however, if you’ve also contributed to an employer’s 401(k) for the year.
Tax Breaks for Freelancers and Self-Employed Individuals
If you have self-employment income, you can deduct many of your expenses on your Schedule C, such as office equipment and supplies, furniture, advertising and mailing costs, business travel, business phone, computer, software and other expenses.
But people often overlook other tax-deductible expenses, such as errors and omission insurance, professional licenses, continuing education, professional publications and books, Steber says. In addition, you can also deduct legal expenses and tax-preparation fees for your business.
Your health insurance premiums may also be tax deductible if you have income from self-employment and aren’t eligible to participate in a health plan offered by your or your spouse’s employer. And you can deduct Medicare premiums as self-employed health insurance premiums, Curt Sheldon, certified financial planner and enrolled agent in Alexandria, Virginia, says.
Home Office Deduction for Freelancers
You can’t take the home office deduction if you’re working remotely for an employer. But if you’re self-employed you can, even if you just did a freelance side gig or consulting work for a few months.
To qualify, you must use part of your home “regularly and exclusively” as a home office for your self-employed business. You don’t have to designate a separate room, but you can’t take the break if you occasionally use your laptop on your dining room table, for example.
If you qualify, you can either deduct a portion of your rent or mortgage interest, property taxes, homeowners insurance and utilities based on the percentage of your home you use for your home office. Or, you can use the simplified method and deduct $5 per square foot of your home office (up to 300 square feet) with a maximum deduction of $1,500.
If you were self-employed only for part of the year, you can take one-twelfth of the break for each month you worked from your home office.
Jean Wells, certified public accountant and associate professor at the Howard University School of Business, recommends calculating the deduction both ways to determine which method will give you the larger break. For more information, see IRS Publication 587, Business Use of Your Home.
Tax-Deductible HSA Contributions When You Get Your Own Insurance
It’s not too late to make tax-deductible contributions to a health savings account for 2022. If you had a HSA-eligible health insurance policy with a deductible of at least $1,400 for self-only coverage or $2,800 for family coverage in 2022, you have until April 18, 2023, to make tax-advantaged contributions.
Many automatically make pretax contributions to a HSA if they have a high-deductible policy at work (and they may also get extra money from their employer). But you can also open a HSA account and make tax-deductible contributions if you buy your own insurance.
You can contribute up to $3,650 to a HSA if you had self-only coverage in 2022 or up to $7,300 for family coverage, plus an extra $1,000 if you were 55 or older. If you had only a HSA-eligible health insurance policy for the first part of the year, you can prorate your contributions based on the number of months you had the eligible coverage.
The limits rise for 2023. If you have a HSA-eligible health insurance policy with a deductible of at least $1,500 for self-only coverage or $3,000 for family coverage in 2023, you can contribute up to $3,850 to a HSA for self-only coverage or $7,750 for family coverage, plus an extra $1,000 if you are 55 or older.
If you buy your own insurance, contributing to a HSA has an added benefit because your tax-deductible contributions can lower your taxable income and may help you qualify for a larger premiums subsidy if you buy your coverage on Healthcare.gov or your state insurance marketplace, Carney says.
The IRS expanded those subsidies significantly, and many people who didn’t qualify in the past can now get help with their health insurance premiums.
“With the enhancements to health insurance subsidies that were incorporated into the American Rescue Plan Act, many people who were previously ineligible for subsidized health insurance premiums now have that as an option,” Carney says.
“Since the subsidies are largely based on income, contributing to a 401(k) or HSA is a way to reduce how much income flows through to the tax return,” he says.
[Read: How to Get the Biggest Tax Refund This Year.]
Medical-Related Travel, Long-Term Care Premiums and Other Expenses
If you itemize your deductions, you can deduct eligible medical expenses that are more than 7.5% of your adjusted gross income.
Your health insurance deductible, co-payments and other out-of-pocket medical expenses count, as do some frequently overlooked costs, such as housing and incidentals when traveling for medical reasons, contact lens supplies, personal protective equipment supplies during the pandemic, breathing machines, walkers, crutches and scooters (when necessary to maintain a level of mobility), Steber says.
You can also deduct long-term care insurance premiums as an itemized medical expense based on your age, Sheldon says.
You can deduct up to $450 in eligible long-term care insurance premiums if you were 40 or younger in 2022, $850 if you were 41-50; $1,690 for 51-60; $4,510 for 61-70; and $5,640 for 70 and older.
“Some states allow the deduction, even if it is not deducted on the federal return,” he says. For more information, see IRS Publication 502, Medical and Dental Expenses.
Energy-Related Home Improvements
You may still be able to take some tax breaks for energy-efficient home improvements, although credits you claimed in previous years may reduce the eligible amount. The nonbusiness energy property credit lets you take a credit for 10% of the cost of certain energy-efficient windows, doors and skylights, and a 100% credit for systems like qualified air-conditioning and water heater systems, Luscombe says.
There is a $500 lifetime maximum for this credit, however, so any amounts you received in the past will reduce the amount of your current credit. There are also lower limits for certain items, such as $200 for windows. The credit was scheduled to expire on Dec. 31, 2021, but the Inflation Reduction Act extended the $500 lifetime credit for 2022.
The new law will also significantly expand the energy efficient home improvement credit starting in tax year 2023, when it will cover additional expenses and be worth up to $1,200 each year from 2023 to 2032, Luscombe says.
The Inflation Reduction Act also made changes to other credits for energy efficiency. The IRS increased the residential clean energy property credit to 30% for residential properties on things like eligible solar panels and solar water heaters you purchased from Jan. 1, 2022, through Dec. 31, 2032, Lisa Greene-Lewis, a certified public accountant and tax expert with TurboTax, says.
For more information about these credits, see the IRS’s factsheet.
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Update 01/31/23: This story was published at an earlier date and has been updated with new information.
