Are you unsure of what credits and deductions you may claim on your 2023 tax return? You’re not the only one! With tax legislation getting increasingly convoluted by the year, it’s difficult to remember which tax incentives are available each year. Keeping this in mind, here are five tax benefits to look out for this tax season.
- State Sales and Income Taxes
The IRS permits you to deduct either your state income tax or your state sales tax, whichever is larger. Individuals are restricted to a combined total deduction of $10,000 for state and local income, sales, and property taxes ($5,000 if married filing separately). If you purchased a large item in 2022, like as a vehicle or boat, it may be more beneficial to deduct the sales tax, but don’t forget to include in any state income taxes collected from your salary just in case. If you work for yourself, you can deduct state income from your expected payments. Moreover, if you paid state tax while submitting your 2021 tax return in 2022, you can deduct that amount on your 2022 federal tax return this year.
- Child and Dependent Care Tax Credit
Most parents are aware of the tax credit for daycare while their kid is small, but they may be unaware that after a child begins school, the same benefit may be used for before and after school care, as well as day camps during school holidays. Anybody who pays a home health aide to care for a spouse or other dependent, such as an elderly parent, who is physically or mentally unable to care for himself or herself, can also claim the child and dependent care tax credit. The credit is worth up to $1,050, or 35% of up to $3,000 in qualified costs per dependent. The credit can be up to $6,000 for two or more qualified children.
- Student Loan Interest Paid by Parents
Normally, a taxpayer can deduct interest on mortgages and student loans only if he or she is personally accountable for the obligation; however, if a parent pays back their kid’s student loans, the IRS treats the money as if the child paid it. As long as the child is not classified as a dependant, he or she can deduct up to $2,500 of the parent’s student loan interest. Even if the kid does not itemize, the deduction can be claimed.
- Medical Expenses
Most individuals are aware that medical costs are deductible if they exceed 7.5% of AGI in tax year 2022. What many don’t understand is that some medical expenditures, such as medical mileage traveled to and from appointments and travel (airline flights or hotel rooms) for out-of-town medical care, can be deducted. These values are as follows for 2022: 22 cents per mile from July 1 to December 31, 2022, and 18 cents per mile from January 1 to June 30, 2022. The rate for tax year 2023 is 22 cents per medical mile driven.
Health insurance premiums, prescription prescriptions, co-pays, and dental payments and treatment are examples of deductible medical costs that taxpayers may be unaware of. Long-term care insurance (deductible amounts vary based on age), prescription glasses and contacts, counseling, therapy, hearing aids and batteries, dentures, oxygen, walkers, and wheelchairs are all deductible.
Those who work for themselves. If you are self-employed, you can deduct the whole sum of your health insurance premium, and if you pay health insurance premiums for an adult child under the age of 27, you may also be eligible to deduct them. Those 65 and older who are self-employed can deduct the amounts paid for Medicare premiums as long as they do not have a regular employment where they are covered under their (or their spouse’s) employer’s health care plan.
- Bad Debt
If you gave money to a friend but were never reimbursed, you may be eligible for a $3,000 non-business bad debt tax credit every year. To qualify, the debt must be completely worthless, with no reasonable possibility of repayment. Non-commercial bad debt is deducted as a short-term capital loss, subject to capital loss restrictions. Only in the year in which the debt becomes worthless may you claim the deduction. You don’t have to wait until a debt is due to see if it’s worthless. Any amount not deducted may be carried forward to decrease future tax burden.