Tax season is upon us again and it’s crucial you understand what you can deduct so you can reduce your bill — and maybe even get a refund.
[READ: The Fastest Way to Get Your Tax Refund]
Explore this guide to 2023 tax deductions to help ensure you don’t pay more than you should.
What Is a Tax Deduction?
A tax deduction is an amount you can subtract from your gross income before calculating your tax liability. For example, if a single taxpayer with $75,000 in 2023 gross income decides to take the standard deduction, they would subtract $13,850, leaving $61,150 subject to taxes.
You can itemize your deductions or take the standard deduction. According to the IRS, about 90% of taxpayers choose the latter.
Additionally, you may be able to take Schedule 1 deductions, also known as above-the-line deductions.
[Read: What’s My Tax Bracket?]
Itemized vs. Standard Deductions
The standard deduction is a set amount you deduct from your gross income. Each year, the IRS releases the updated standard deduction amounts, which vary by tax filing status.
Itemized deductions are qualified expenses you can subtract from your adjusted gross income. If you go this route, you’ll deduct the actual amounts you spent in categories like charitable donations and mortgage interest.
Eric Bronnenkant, a CPA and the head of tax at Betterment, says individuals who itemize are often homeowners and high-income earners.
At the end of the day, however, the best option is the one that saves you the most money.
“Every year, we look at the standard deduction compared with the itemized deduction, and we’re always going to take what’s bigger,” said Helena Swyter, a a Chicago-based CPA and the founder of SweeterCPA, in an email.
“You don’t have to lock into one or the other. Every year can be different,” she adds.
Standard Deduction Amounts for Tax Year 2023
These are the standard deduction amounts for tax year 2023:
— Married couples filing jointly: $27,700, an $1,800 increase from 2022.
— Single taxpayers: $13,850, a $900 increase from 2022.
— Married couples filing separately: $13,850, a $900 increase from 2022.
— Heads of household: $20,800, a $1,400 increase from 2022.
[READ: Is It Better to File Taxes Jointly or Separately?]
Itemized Deductions for 2023
If you decide to itemize, the available deductions for tax year 2023 include:
Charitable contributions: To qualify, you must have made charitable contributions in cash or other property to a qualifying organization during the 2023 calendar year. You can generally deduct up to 60% of your AGI, but limits from 20% to 50% may apply in some cases.
[Read: The Pros and Cons of Standard vs. Itemized Tax Deductions]
Mortgage interest: For debt accrued after Dec. 15, 2017, you can deduct home mortgage interest on the first $750,000 of debt (or $375,000 if you’re married filing separately). If you took out a home loan before Dec. 15, 2017, the previous maximum of $1 million (or $500,000 if married filing separately) still applies.
Home equity loan interest: You can deduct qualified home equity loan interest if you used the loan proceeds to buy, build or improve the property that secures the debt in 2023. Some limits apply.
Medical and dental expenses: You can deduct qualified medical and dental expenses for you, your spouse and your dependents that exceed 7.5% of your AGI. These include charges for the diagnoses, treatments or preventive care but do not include unnecessary procedures like cosmetic surgery.
Casualty and theft losses: You may be able to deduct casualty and theft losses not covered by insurance if they resulted from a federally declared disaster.
State and local taxes: You can deduct up to $10,000 (or $5,000 if married filing separately) of the state and local taxes you paid in 2023. The combined limit applies to personal property, plus sales and income taxes you paid at the state and local levels.
Other: The IRS allows a variety of additional deductions such as gambling losses and certain unrecovered pension investments.
Above-the-Line Deductions for Tax Year 2023
Taxpayers can also take certain above-the-line deductions — meaning they can be claimed even if you take the standard deduction — on the 1040 Schedule 1, including the following for tax year 2023:
Alimony: The payor of alimony can deduct payments for divorce agreements executed before Dec. 31, 2018.
Educator expenses: Educators can deduct up to $300 of unreimbursed expenses for items such as books, supplies, equipment and professional development courses bought during the year.
Health savings account contributions: A health savings account is a dedicated savings account for individuals enrolled in a qualified high-deductible health insurance plan. These accounts receive special tax treatment, including the option to deduct contributions up to $3,850 for single filers and up to $7,750 for families in 2023. Consider taking advantage of this if you contributed to your HSA directly.
IRA contributions: Individuals were allowed to contribute up to $6,500 to IRAs in 2023, or up to $7,500 if they were 50 or older. Traditional IRA contributions may be deductible up to the full amount. However, limits apply if taxpayers are also covered by an employer-sponsored retirement plan and have income above certain thresholds.
Self-employment deductions: Self-employed taxpayers can take advantage of a number of deductions, such as the cost of health insurance premiums, dedicated home office expenses and one half of self-employment taxes.
Student loan interest: Borrowers who paid interest on a qualified student loan in 2023 can deduct the lesser of $2,500 or the amount of interest they actually paid during the year. This deduction is gradually reduced and eventually eliminated, however, as a taxpayer’s modified AGI reaches the annual limit.
Consider Using a Tax Pro
If you’re not sure how to maximize your deductions to legally minimize your tax liability, it may be worthwhile to consult a tax accountant or tax advisor. They can help you understand what you qualify for while ensuring you don’t miss any lesser-known deductions.
More from U.S. News
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A Guide to Tax Deductions for the Self-Employed
Your Guide to Tax Year 2023 Deductions originally appeared on usnews.com
Update 02/29/24: This story was published at an earlier date and has been updated with new information.
