By Jeff & Endry

In the midst of an ever-busy lifestyle, most taxpayers just want to survive tax season. When it’s time to file, many procrastinate and wait until the final weeks or rush through their tax preparation just to get it done, only applying the standard deduction or using the most familiar tax deductions to itemize. Some also neglect to utilize available tax credits to lower their liability.

This is unfortunate. Tax breaks can make significant dents in your tax liability and allow you to keep more of your money to save and use for current goals or future objectives. Here are some often-overlooked deductions and credits we often recommend in our tax-planning services to clients.

Tax Deductions vs. Tax Credits: What’s the Difference?

Tax deductions reduce the amount of taxable income you incur before taxes are assessed. With the right deductions, you could potentially move into a lower tax bracket.

By contrast, tax credits apply after your liability (or what you owe) has been calculated, reducing your overall tax bill. Credits are based on income, expenses, and other factors. Every credit dollar reduces your tax bill by the same amount.

Wealthy, high-income taxpayers may benefit more from deductions, especially grouping deductions within a single tax year, while lower-income families may earn more from credits, since many credits are phased out or not allowed for those above certain AGI levels. Shrewd taxpayers take advantage of both when possible. 

State and Local Tax Deductions

The breaks most taxpayers ignore involve the imposition of state sales taxes. With the wide variance of tax laws from state to state, it’s easy to see how they get missed, but they can be a significant part of your overall deductions. With the highest state income tax rates in the country, all California taxpayers should be taking advantage of this tax break.

Individual and Home-Based Tax Deductions and Credits

Many of the best opportunities for saving on taxes are centered around life and home. The following are some of the more overlooked or forgotten breaks:

• Mortgage Interest Reduction: Qualified homeowners who itemize their deductions can cut their taxable income by deducting interest payments on their existing mortgages. Portions of the premium payments may also be deductible.
• Renewable Energy Credits: Homeowners switching to renewable energy sources can write off certain expenses due to the Residential Clean Energy Credit. You may be able to take up to 30% of the installation costs for expenses such as installing solar panels, water heaters, or wind turbines. You may also get a non-refundable credit for a new electric vehicle if it meets IRS guidelines. Looking ahead to 2025, credit amounts are expected to average about $6,544.

Retirement Saver’s Credit

The saver’s credit helps low-to-medium-income taxpayers contribute to an IRA, 401(k), 403(b), and certain other retirement funds. The credit runs between 10% and 50% of up to $1,000 for each individual or $2,000 if married filing jointly.

Charitable Contributions

If you itemize your deductions or donate to a charity via certain approved strategies, then you may be able to deduct the total from your taxable income. You could also consider opening a donor-advised fund, which allows you to make tax-deductible charitable contributions but defer dispersing the funds to favorite charities until the future.

Education Deductions

The IRS facilitates continuing education with several credits and deductions:

• American Opportunity Tax Credits: Students can claim the first $2,500 spent on approved educational expenses, such as tuition, books, and school fees.
• Lifetime Learning Credit: The lifetime learning credit helps post-graduates continue their education. They can claim 20% of the first $10,000 spent on expenses, to a maximum of $2,000.
• Student Loan Interest: Taxpayers repaying their student loans can deduct the amount they paid in interest over the last year. The maximum you can claim for 2024 is $2,500.

Business Tax Deductions

Business owners and self-employed individuals have numerous options for reducing their tax bills.

Self-Employed Expense Deductions

Self-employed individuals can write off a wide variety of eligible expenses, such as continuing education, retirement savings, mileage reimbursement, and certain kinds of health insurance. Those working out of residences may qualify for home-office deductions as well.

Small Business Owner Tax Deductions

Some of the most helpful deductions for small business owners include:

• Qualified business income deductions
• Research and development tax credits
• Family and medical leave credit
• Employee retention credits
• Section 179 expenses (e.g., equipment and machinery)

Check with your tax professional to verify that you’re taking advantage of all applicable breaks.

Healthcare and Medical Deductions

You might qualify for certain expenses related to healthcare and medicine, including the following.

• Medical Expense Deduction: If you itemize deductions, you may qualify to have certain medical expenses subtracted from your taxable income. Expenses must surpass 7.5% of your adjusted growth income.
• HSA Contribution Deductions: If you’re participating in a high-deductible health insurance plan and you’ve opened a health savings account (HSA), your contributions to the fund may be deductible.

Find More Overlooked Tax Deductions and Credits

These are some of the most underutilized tax deductions, credits, and breaks for individuals in the Cupertino area, but there may be more that fit your situation.

We’re Here to Help!

Ready to take control of your financial future? Pay less in taxes? Retire sooner rather than later?

Not only can our team at ATS Wealth Circle help you build an effective financial plan, we also have the experience and knowledge to help you manage it. Our specialty is helping tech professionals create and realize their wealth management goals. 

If you or someone you know would like to know about financial planning strategies, call (408) 333-9998 or visit our website to schedule a meeting today.

The financial advisors at ATS Wealth Circle operate as independent financial advisors for Addison Avenue Investment Services. Financial advisors offer securities through Raymond James Financial Services, Inc. Member FINRA/SIPC, and securities are not insured by credit union insurance, the NCUA or any other government agency, are not deposits or obligations of the credit union, are not guaranteed by the credit union, and are subject to risks, including the possible loss of principal. ATS Wealth Circle is not a registered broker/dealer and is independent of Raymond James Financial Services. Additionally, First Technology Federal Credit Union and Addison Avenue Investment Services are not registered broker/dealers and are independent of Raymond James Financial Services and ATS Wealth Circle. Investment advisory services are offered through Raymond James Financial Services Advisors, Inc. Neither Raymond James Financial Services nor any Raymond James Financial Advisor renders advice on tax or legal issues. These matters should be discussed with the appropriate professional. This material is being provided for informational purposes only and is not a complete description, nor is it a recommendation. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Always use a tax planning professional to help with tax planning.