How to Save Money on Your Taxes This Year
With another year of taxes to prepare for, it’s never too early, or too late, to start thinking about tax planning, getting your documents together, and talking to your accountant about possible deductions and savings you could be making on your 2023 tax returns.
What are Tax Deductions?
Simply put, tax deductions are expenses that you’ve accumulated throughout the year that can be taken into account when you pay your taxes. That deduction can reduce the amount of income you are required to pay tax on. In some cases, this will lower the amount of money you owe on your tax return or can increase your local, state, or IRS refund.
Tax credits can also help lower taxes you have to pay. These are fixed-value amounts for different categories that directly lower the amount of tax you owe in a dollar-for-dollar match. You may not realize that you’re eligible for certain tax credits, so always talk to your accountant about those that might be applicable.
Tax Deductions and Credits to Claim in 2024
Mortgage Interest
If you bought a home this year, the interest you’ve started paying on
your mortgage is tax deductible. With today’s high-interest rates, this extra tax savings can be especially helpful.
If you’ve
refinanced your mortgage this year, you may be able to deduct the interest from the new mortgage. You may also be eligible for a deduction on any mortgage points you paid during your new loan’s origination, maximum loan charges, or any discounts or loans you had on the mortgage.
Energy Efficient Updates
You might be wondering, “Are home improvements tax deductible?” In many cases, if you’ve made
energy-efficient upgrades to your property, you could be eligible for tax credits.
Installing more efficient windows, doors, or insulation could qualify low-to-moderate-income families for up to $8,000 in credits or up to 80% of the total improvement costs. Electrical and appliance upgrades could be as much as $14,000 in credits.
Home Equity Loan or HELOC Interest
If you took out a
home equity loan or a home equity line of credit (HELOC) in 2023 for
home renovations or improvements, you might be able to deduct the interest on these loans.
Health Savings Account Contributions
Depending on the type of health insurance coverage you have through your employer, you may have the opportunity to contribute to a
health savings account (
HSA) directly from your paycheck. Not all companies offer this, so you can also set up your own accounts and
claim deductions for healthcare expenses.
Retirement Plan Contributions
Much like an HSA, employer-sponsored retirement program contributions can come out of your paycheck tax-free. If you have a traditional IRA, you may also be able to deduct contributions.
How much you can deduct from your retirement plan depends on the
tax brackets you fall into and your filing status. For instance, if you’re single or head of household and have a modified income of $73,000 or less, you may be able to deduct the full amount of your contribution limit. It’s always best to talk to your accountant and check the
IRS guidance for your situation.
Student Loan Interest
With student loan payments resuming in 2023, you likely paid interest if you contributed any money towards paying off your student loans in 2023. This interest may be tax deductible, so make sure you have the necessary paperwork come tax time.
Charitable Contributions
Donations made to
qualifying charitable organizations may also be tax deductible. You’ll want to check if the charity is tax-exempt and listed as a 501(c)(3) public charity to be able to deduct any donations made this year.
Medical Expenses
You may be able to deduct some medical expenses, such as preventative care, surgeries, and some dental and vision treatments. Any unreimbursed medical expenses that exceed 7.5% of your adjusted gross income could be tax deductible.
Taxes
You may also be eligible for income tax deductions for other taxes you’ve paid this year. Property, state, and local taxes may have been due at various points in the year, so they could be deductible on your annual filing.
If you itemize your taxes, you can also claim sales tax deductions at both the state and local level for income taxes you paid during the year. However, this means you’ll need to keep extensive records of anything you bought that you want to file a deduction for.
Child and Adoption Credit
If your family grew this year thanks to adoption, you could receive a tax break. For 2023 taxes, the maximum is $15,950 under this category. For families with children under 17, tax credits of up to $2,000 per child may be applicable.
Savers Credit
The Savers Credit could be applied to benefit low and middle-class Americans over 18 if contributions have been made to a retirement account. Individuals must not be full-time students or listed as dependents on someone else’s tax return.
Individuals must also make under a maximum adjusted gross income to qualify for this IRS credit—for 2023, married filing jointly is an income of $73,000, while other filing statuses are $36,500.
Electric Vehicle Tax Credit
For those who purchased an electric vehicle in 2023 or plug-in hybrids, tax credits up to $7,500 for new vehicles or $4,000 for used cars may be claimed as a tax credit.
Standard Deduction
Standard deductions are what the vast majority of people tax when they file their taxes. The alternative is meticulously recording everything spent during the year to itemize filing. For 2023 taxes, the standard deductions for single people are $13,850, while married filing jointly is $27,700.
An Earned Income tax credit could be available for low-income taxpayers, both with and without children.
In Wisconsin, the credit is worth $12,120 for single people with no children and $14,120 for married people filing jointly with no children. For families with two or more children, though, this goes up to $36,348 for single filers and $38,348 for married filing jointly.
Illinois also has its own Earned Income credit rules for individuals to qualify, including meeting certain income limits and basic rules for qualifying with or without children.
Homestead Credits
There are also homestead credits in both Wisconsin and Illinois that could lower overall taxes paid. Individuals and families must meet several qualifications to qualify for these tax credits, but they could be worth around $1,100 if qualifying.
Dependent Care Credit
If you look after children or other dependents under 13 or who are incapable of caring for themselves, you could qualify for up to $3,000 credit for expenses for one dependent or $6,000 for two or more.
Lifetime Learning
You can claim up to 20% of the first $10,000 in tuition and fees, up to a maximum of $2,000, for any further education you do throughout the year.
American Opportunity Credits
Also known as the AOC, this credit lets you claim the first $2,000 spent on tuition, books, or equipment for furthering your education. Living expenses and transportation don’t qualify, but you could also get another $500 for the following tax year.
Save on Your Taxable Investments
If you have any
investments, your
wealth manager can help you maximize your savings when filing your taxes. One option you could investigate is reinvesting your investment dividends.
Talk to your
wealth manager to help you determine the best type of tax-saving strategy for
your investments.
Get Help With Your Finances in 2024
As you prepare your finances for a new tax season, First National Bank and Trust is here to help. For tax questions and eligibility, it’s best to consult your accountant or visit the
IRS website.
We can help you maximize your tax savings by opening a retirement or health savings account, while our wealth managers can provide personalized investment advice.
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