12 of the best tax deductions for 2020

12 of the best tax deductions for 2020

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Your taxes are due today. The IRS in March moved Tax Day to July 15 due to the COVID-19 pandemic. As the economy tumbles and unemployment grows it’s vital to maximize your tax refund — or at least minimize what you’ll pay this year. 

We’ve rounded up a dozen of the most valuable tax deductions here. Note that these deductions are primarily for those who are not self-employed — a group with its own, largely separate, set of tax write-off options.

Read moreThe best tax software for 2020: TurboTax, H&R Block, TaxSlayer and more

1. Earned income tax credit

The earned income tax credit reduces the amount of taxes owed by those with lower incomes. The IRS typically notifies households that might qualify for EITC — but if you weren’t contacted and want to see if you’re eligible, you can use the EITC Assistant

2. Lifetime learning credit

While the AOTC is exclusively for first-time college students, the lifetime learning credit applies to other higher-education candidates. To claim it, you, your spouse or a dependent must be footing the bill for qualifying higher education costs. For tax year 2019, you can claim the full credit if your modified adjusted gross income (MAGI) is lower than $58,000 or partial credit if it’s less than $68,000. 

3. American opportunity tax credit

The AOTC is for first-time college students for their first four years of college or other higher education. If you’re pursuing a degree and haven’t had a felony drug conviction, you could qualify. That noted, your modified adjusted gross income (AGI) must not exceed $80,000 a year in order to claim the full credit. (If your annual income falls between $80,000 and $90,000, you can still receive a partial credit.)

4. Child and dependent care credit 

If you care for a child or another dependent in your household, you can claim a credit for up to $3,000 for one dependent or $6,000 for two or more. You’ll need to provide proof of your expenses that are directly related to ensuring a child’s or dependent’s well-being and protection.

5. Saver’s credit

If you make contributions to an individual retirement account or employer-sponsored retirement plan, like a 401(k), you may qualify for the saver’s credit. You must be at least 18 years of age. You can’t be a full-time student. And no one else can claim you as a dependent on their tax return. The amount of the credit depends on your AGI, which must be less than $64,000 if you’re married and filing jointly — or $32,000 if you’re a single filer.

6. Child tax credit

The child tax credit could save you up to $2,000 for each qualifying child. Each child must be 17 or younger and claimed as a dependent on your tax return. Eligible dependents include: 

  • Child
  • Stepchild
  • Foster child
  • Sibling
  • Step-sibling
  • Half-sibling
  • Grandchild
  • Niece/nephew
  • Or adopted child

Read moreHow to estimate your 2020 tax refund

7. Adoption tax credit

There are also benefits available for expenses related to adoption. The adoption tax credit covers adoption fees, court costs, attorney fees, traveling expenses and other expenses that are directly related to adoption. As of 2018, the maximum amount is $13,810 per child.

8. Medical and dental expenses

Even with insurance, you might have to pay for medical expenses out of pocket. You can deduct these expenses for you, your spouse or any of your dependents, as long as the total amount exceeds 7.5% of your AGI. Possible expenses include:

  • Fees to doctors, dentists, specialists, mental health professionals and even nontraditional medical practitioners.
  • Hospital care, residential nursing home care and acupuncture treatments.
  • Treatment for alcohol, drug addiction, smoking-cessation programs and prescription drugs for nicotine withdrawal and related addiction needs.
  • Payments for insulin, eyeglasses, contact lenses, hearing aids, crutches, wheelchairs, guide dogs and other service animals.

Funeral expenses, over-the-counter medications and most cosmetic surgery can’t be deducted.

9. Residential energy credit

For the energy-efficient homeowner, you could claim a residential energy credit. The credit includes:

  • Energy-efficient windows and doors
  • Roofs
  • Insulation
  • Energy-efficient heating and AC systems
  • Water heaters
  • Biomass stoves
  • Qualifying solar electric property and solar water heaters

Read more: Electric-car tax credit issued improperly to thousands, audit finds

10. Student loan interest deduction

Paying back your student loans can be daunting and expensive, but you can catch a little break come tax time with the student loan interest deduction.

If you paid interest on a qualifying student loan for you, your spouse or another dependent, you may qualify for the tax credit. You can claim the deduction as an adjustment to your income rather than an itemized deduction. You’ll be able to deduct either $2,500 or the actual amount of interest you paid during the year, whichever is less.

11. Health savings account contribution

If you have a health savings account, contributions made to your HSA are not subjected to federal income tax. You can also claim a tax deduction for making contributions to your HSA. 

Contribution limits vary by your high-deductible health plan, your age and the date you become eligible.

12. Charitable contribution deductions

Charitable contributions are one of the most common ways to get a tax deduction. You can deduct contributions of money or property you donated to qualified organizations, but you’ll need to itemize your deductions. 

In most cases, you can deduct up to 50% of your AGI, but there are some cases where you might be limited to 20% or 30%.

Read more: The best robo-advisers in 2020

Source: Cnet News
Keyword: 12 of the best tax deductions for 2020

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