Overview
The tax code includes a range of tax breaks that can reduce your taxable income or directly lower your tax bill. The challenge is that many people don’t know which tax deductions or tax credits are available to them, or assume they don’t qualify.
Taking a few minutes to understand the most common tax breaks for the 2025 and 2026 tax years can make a big difference in what you owe (or what you get back). Below, are some of the most popular tax deductions and tax credits available, how they work, and who they tend to benefit most.
Key takeaways:
Tax deductions lower your taxable income while tax credits reduce the tax you owe.
The tax breaks you qualify for depend on your personal situation, including your income, family size, and the types of expenses you have.
Some tax credits are refundable, meaning you can get a refund, even if you don’t owe any tax.
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The Difference Between Tax Deductions and Tax Credits
Before looking at specific tax breaks, it helps to understand the difference between tax deductions and tax credits. Both reduce what you owe, but they work in different ways.
A tax deduction reduces your taxable income. So, for example, if you have $100,000 in income and claim a $5,000 deduction, your taxable income is $95,000. Assuming you’re in the 22% tax bracket, a $5,000 deduction is worth around $1,100.
A tax credit, on the other hand, reduces your tax bill dollar-for-dollar. So, for example, if you owe $10,000 in taxes but qualify for a $5,000 tax credit, your new tax bill would be $5,000. Because tax credits directly lower your tax bill, a tax credit is more valuable than a tax deduction for the same amount.
The deductions and credits available to you depend on your unique circumstances, such as the types of income you earn, the expenses you paid during the year, your filing status, and the number of people in your household.
As you review the tax breaks below, keep in mind that not every option will apply to your situation.
What Tax Deductions Are Available to Individuals?
Here are some common tax deductions that may help you lower your taxable income when you file your return.
Standard deduction
The standard deduction is a fixed dollar amount you can subtract from your income without tracking individual deductible expenses.
You can choose between claiming the standard deduction or itemizing, whichever offers a greater tax benefit. Around 91% of taxpayers claim the standard deduction because it’s simple. It typically provides a larger deduction than itemizing if you don’t own a home, live in a high-tax state, or make large donations to charity.
Itemized deductions
Itemized deductions allow you to subtract certain qualifying expenses from your taxable income instead of taking the standard deduction.
When you itemize, you list eligible expenses on Schedule A of your tax return.
Itemized deductions include:
Out-of-pocket medical expenses
State and local taxes
Charitable contributions
The IRS Instructions for Schedule A include more information on each of those categories.
Itemizing tends to benefit people with a lot of deductible expenses, such as homeowners with large mortgages and those who live in high-tax states.
Above-the-line deductions
Above-the-line deductions, also known as adjustments to income, reduce your taxable income before calculating your adjusted gross income (AGI).
These deductions are valuable because you can claim them in addition to itemizing or claiming the standard deduction. Also, the IRS uses your AGI to determine eligibility for several other tax benefits, so a lower AGI can open the door to additional tax deductions and credits.
Some common above-the-line deductions include:
Contributions to a health savings account (HSA)
Contributions to a SEP or SIMPLE IRA retirement account for self-employed people
Health insurance premiums for self-employed people
Contributions to an IRA
Student loan interest paid
You can find more information on these and other above-the-line deductions in the IRS Instructions for Form 1040.
Business deductions
If you own a business or work as a freelancer or independent contractor, you can deduct “reasonable and necessary” expenses related to running your business.
Common business deductions include:
Office supplies
Legal and professional fees
Advertising costs
Depreciation on business property
Insurance
Rent or lease payments
Salaries and wages
Business deductions are valuable because they lower your income taxes and your self-employment tax, which is the self-employed person’s version of Social Security and Medicare taxes.
Qualified business income (QBI) deduction
The QBI deduction allows owners of pass-through businesses, including sole proprietorships, partnerships, limited liability companies (LLCs), and S corporations, to deduct up to 20% of their business income.
Eligibility depends on your income level, the type of business you own, and the amount of wages and property associated with the business.
Determining whether you’re eligible and calculating the QBI deduction are complicated, so it’s a good idea to discuss this one with a qualified tax professional.
Qualified tip deduction
If you earn tips as part of your compensation, you may be able to deduct tips from your taxable income.
The tip deduction is only available for jobs that “customarily and regularly receive tips,” such as servers, bartenders, personal service providers, transportation, and hospitality workers. The IRS has a list of qualifying occupations.
The maximum annual deduction is $25,000, but there are income limits. The deduction starts to phase out once your modified AGI (MAGI) exceeds $150,000 ($300,000 for married filing jointly).
Qualified overtime deduction
If you receive overtime pay, you may be able to deduct up to $12,500 of those wages ($25,000 for married couples filing jointly).
Lawmakers dubbed this “no tax on overtime,” but that’s not exactly true. You can’t deduct your entire overtime check—only the extra amount you receive above your normal hourly rate.
For example, say you normally earn $20 per hour and overtime pays $30 per hour (time-and-a-half). You can only deduct the extra $10 per hour.
There are also income limits. The deduction starts to phase out once your MAGI exceeds $150,000 ($300,000 for married filing jointly).
Vehicle loan interest deduction
If you purchase a new vehicle after December 31, 2024, you may be able to deduct up to $10,000 of interest paid on that loan each year.
To qualify, it must be a new vehicle (not used), and its final assembly must have taken place in the United States. You also have to drive it primarily for personal use on public streets, roads, and highways. In other words, vehicles used primarily for business use don’t qualify. Nor do off-road vehicles like golf carts, race cars, forklifts, riding lawn mowers, or farm tractors.
Income limits apply to this deduction, as well. The amount you can deduct is reduced (potentially to zero) if your MAGI is above $100,000 ($200,000 for joint filers).
Deduction for seniors
If you’re age 65 or older, you may qualify for an additional $6,000 deduction ($12,000 if you’re married and file jointly with your spouse).
This is on top of the additional standard deduction available to seniors. However, there are income limits. The deduction phases out if your MAGI is over $75,000 ($150,000 for joint filers).
What Tax Credits Can Reduce Your Tax Bill?
Here are several tax credits that can help reduce the amount of tax you owe.
Child tax credit
The child tax credit helps offset the cost of raising children by providing a tax benefit for each qualifying child under age 17.
It’s worth up to $2,200 per child for the 2025 tax year, and this is a partially refundable credit, meaning you can get up to $1,700 as a tax refund, even if the credit amount is more than the tax you owe before applying the credit.
You qualify for the full credit amount if your income is less than $200,000 ($400,000 for joint filers) and you meet all the other eligibility requirements. You may qualify for a partial credit if your income is lower than those limits.
Child and dependent care credit
The child and dependent care credit helps offset the cost of caring for children or other dependents while you work or look for work.
The credit amount is a percentage of your care expenses, ranging from 20% to 35%, depending on your income. For the 2025 tax year, you can claim a maximum of $3,000 in care expenses for one person, or $6,000 for two or more people.
Earned income tax credit (EITC)
The EITC helps support low- to moderate-income workers by providing a refundable tax credit.
The credit amount depends on your income, filing status, and the number of qualifying children you have. For the 2025 tax year, the maximum credit amounts are:
$649 with no qualifying children
$4,328 with one qualifying child
$7,152 with two qualifying children
$8,046 with three or more qualifying children
The IRS adjusts those amounts each year for inflation.
Use the IRS’s EITC Assistant to see if you’re eligible and estimate the amount of your credit.
Education credits
Two education credits help offset the cost of higher education for students and their families.
The American Opportunity Tax Credit (AOTC) is worth up to $2,500 per student, but it’s only available for the first four years of college. To claim it, the student must be enrolled at least half time in a program that leads to a degree, certificate, or other recognized credential.
The Lifetime Learning Credit is worth up to $2,000 per return. There’s no limit to the number of years you can claim the credit or the half-time student requirement. So it’s available for graduate work and even for students taking just one or two classes.
You can claim both credits in the same year for different students.
Adoption credit
The adoption credit helps offset some of the costs of international, domestic, private, or public foster care options.
For 2025, you can claim a credit for up to $17,280 in qualified adoption expenses per child. There are income limits, but these are relatively generous compared to many other tax credits. It starts to phase out if your MAGi is greater than $259,190, and disappears entirely once your MAGI is over $299,190.
One more limitation to note: it’s not available for expenses relating to adopting your spouse’s child.
Saver's credit
The Saver’s credit encourages low- and moderate-income people to contribute to retirement accounts, like an IRA or 401(k).
The credit is based on a percentage of contributions you make to an eligible plan. That percentage ranges from 10% to 50%, depending on your income.
The maximum contributions qualifying for the credit are $2,000 ($4,000 if married filing jointly), meaning the maximum credit is $1,000 ($2,000 for joint filers).
Don’t Leave Tax Savings on the Table
Claiming tax deductions and credits makes a big difference in the amount you owe or the size of your refund. Don’t miss out just because you don’t realize you qualify.
If you’re not sure which deductions or credits apply to your situation, consider working with a qualified tax professional. They can review your income, expenses, and life circumstances to ensure you claim every tax break you’re entitled to.
Level up you tax filing game with TaxSlayer
File your taxes with TaxSlayer and get your maximum refund.
by your friends at The Daily Navigator
