Up to 5 tax deductions Americans can claim

If you want to keep more money in your pocket instead of sending it to Uncle Sam, you need to maximize your tax deductions. Unlike tax deductions, which reduce the amount of income considered taxable, tax credits reduce the amount you owe dollar for dollar. That means if you get a $100 tax credit, you have to pay $100 less in taxes. Some tax credits are also refundable. This means that if you owe money when you file your tax return, you can claim that credit as a tax refund.

Let’s take a look at the five largest tax deductions Americans can claim. All figures listed below are for 2023 and apply to tax returns due April 15, 2024.

1. Adoption Credit

How much is it worth? Up to $15,950

The adoption tax credit is intended to offset the high cost of adopting a child. Eligible expenses include adoption fees, legal fees, and travel costs associated with adoption. Generally, you can claim the deduction if you adopt a child under the age of 18 or someone who is physically or mentally unable to care for themselves, regardless of age. One exception: If you adopt a stepchild, you cannot claim the deduction.

The credit will phase out in 2023 if your modified adjusted gross income (MAGI) is between $239,230 and $279,230.

There are no refunds, but excess amounts can be carried forward for up to five years. That means if you only owe $50 million when you file your taxes in 2023, you can carry over the remaining $10,950 of the $15,950 credit and use it to offset taxes the following year.

2. EV tax credit

How much is it worth? Up to $7,500

If you purchase a new electric vehicle (EV) in 2023, you may be eligible for a tax credit of up to $7,500. If you qualify for this credit, you shouldn’t be shocked. Dealers must provide customers with a report showing that their vehicle qualifies for credit.

You can claim the credit if your modified adjusted gross income is less than $150,000 (single filers), $225,000 (head of household), or $300,000 (married filing jointly).

Customers who purchase a used EV have a credit of up to $4,000, but the income threshold is lower: $75,000 (single filer), $112,500 (head of household) or $150,000 (married filing jointly).

If you’re considering purchasing an EV this year, read the 2024 EV tax credit rules. One of the big changes for 2024: Dealers can now apply the credit directly to the purchase price and receive a refund from the IRS.

3. Earned Income Tax Credit (EITC)

How much is it worth? Up to $7,430

The Earned Income Tax Credit (EITC) is a refundable credit that provides tax relief to families with low to moderate incomes. To qualify, you must have earned income, or money earned through work, during the tax year.

Income limits are determined by family size. Single filers with no dependents will not qualify if their 2023 income exceeds $17,640, but married couples filing jointly with three dependents can earn up to $63,398.

The maximum credit ranges from $600 for taxpayers with no qualifying children to $7,430 for families with three or more qualifying children.

4. Solar tax credit

How much is it worth? Up to 30% of eligible home improvement costs

If you make energy-saving improvements to your home, you may be eligible for a tax deduction of up to 30% of the cost. The Residential Clean Energy Credit, also known as the solar tax credit, will apply to home clean energy projects through 2034, but the credit value will phase out in 2033 and 2034.

Eligible expenses include the cost of installing solar panels, solar water heaters, wind turbines, and geothermal heat pumps. The credit is non-refundable, but unused amounts can be carried forward and used to lower future tax bills.

5. Child Tax Credit

How much is it worth? Up to $2,000 per eligible child

Parents of children under the age of 16 by the end of 2023 are eligible for the child tax credit. To claim the credit, your child generally must be a tax dependent. This credit is available to single filers making less than $200,000 and married couples filing jointly making less than $400,000.

Credits are available for up to $2,000 per qualifying child. $1,600 of that is a refundable tax credit known as the Additional Child Tax Credit.

How to Maximize Your Tax Deductions

Fortunately, tax preparation software makes it easy for most people to figure out what tax deductions they may be eligible for. However, if you have incurred a large expense that could help you qualify for the credit, such as adopting a child or completing a major home project, it may be a good idea to consult a tax professional because the rules can be complicated.

Filing your taxes is never fun. However, tax credits can ease your burden when paying taxes and may even help you get your refund.

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