For the 2022 tax year, roughly 94% (152M) of tax returns were e-filed; of those filings, almost half (43%) were self-prepared returns. Self-preparing tax returns is a trend that's continued to rise in recent years, up 48% since 2013.
Filing your own taxes is a skill set — a talent that takes a lot of practice and education to refine. This is especially true of those who plan to itemize their deductions, which can oftentimes be a science in its own right.
What is a tax deduction?
Broadly speaking, tax deductions come in two flavors — the standard deduction, and itemized deductions.
How much can I deduct from my taxes?
The standard deduction is a set amount that all filers can reduce their taxable income by. For 2023, that amount is $13,850 for single filers, $20,800 for heads of households, and $27,700 for those married filing jointly. Next year, those deductions increase to $14,600, $21,900, and $29,200.
What are itemized deductions?
Itemized deductions, on the other hand, are exactly what they sound like. Instead of taking the lump-sum standard deduction, filers can choose to itemize certain eligible deductions based on their tax situation and expenses.
Standard vs Itemized deduction
It's estimated that about 90% of filers choose to take the standard deduction. This is because you can't take both the standard deduction and itemized deductions, and unless your itemizations exceed the SD, it's simply not worth it.
Deductions vs tax credits
Deductions also aren't to be confused with tax credits, which they can coexist with. Filers can take tax credits for certain eligible events or expenses, and these credits reduce their taxes owed in direct proportion to their value. I.e., a $1,000 credit is good for a $1,000 reduction in taxes owed. In many cases, this can help facilitate a refund.
What Are The Most Common Tax Deductions?
For those who do choose to go the itemized route, there are a plethora of itemizations to choose from — some being more common than others.
Common examples of itemized tax deductions
Personal property tax deductions: Taxes on your home, vehicles, etc.
Home mortgage interest deduction
Moving expenses deduction
Interest expenses on other items can be deducted in certain situations
Business expenses are deductible for most related expenses
Business use of your car or home is also eligible for deduction
Form 2106 for regular W-2 employees to deduct expenses related to their job
Education and Health-Related Deductions
Student loan interest: Interest paid on student loans is tax-deductible on both private and federal loans for yourself, your spouse, or dependents up to $2,500 per year.
Work-related education expenses are also tax-deductible if you meet certain criteria.
If you’re a teacher, you’re able to deduct up to $300 of unreimbursed business expenses for classroom materials.
Medical and dental expenses: If your medical and dental expenses surpass 7.5% of your adjusted gross income for the year, you might qualify to deduct them. This applies to expenses incurred for yourself, your spouse, and your dependents throughout the taxable year, and does not include expenses that insurance has covered.
Other Common Deductions
Gambling losses — you're not able to deduct any more than the amount you won.
Charitable contributions — itemizers can deduct up to 60% of their adjusted gross income (AGI).
For freelancers and self-employed — you're eligible to deduct expenses related to your work.
Home office deduction
And of course, your IRA, 401(k), and HSA contributions are all also made pre-tax, meaning these will offset your taxable income whether you choose to itemize or not.
What’s the Difference between Tax Credits and Deductions?
As we discussed above, tax credits can also be a valuable way to reduce the taxes you owe or increase your refund — and, they can coexist with either form of deducting.
Some of the most common tax credits for 2023
The Child Tax Credit (CTC) is for families with children ages 17 and under and can be worth up to $2,000 per child for the 2023 tax year.
CDCC: The Child and Dependent Care Credit (CDCC) is meant to offset a portion of expenses related to daycare and other services for children 13 or under, a spouse or parent who cannot self-care, or another dependent, enabling you to engage in work. Typically, the credit amounts to a maximum of 35% of $3,000 in expenses for a single dependent or $6,000 for two or more dependents.
The American Opportunity Credit (AOC) allows filers to deduct up to $2,000 that they spent on school costs like tuition, books, etc. along with 25% of the next $2,000, capping it at $2,500.
The earned income tax credit (EITC) is a credit created for low-income tax filers. For 2023, the credit’s value varies widely depending on your income, marital status, and how many kids you have, ranging from $600 to $7,430.
The Saver’s Tax Credit is valued anywhere from 10% to 50% of up to $2,000 of an individual's (and $4,000 for joint filers) contributions to an IRA, 401(k), 403(b), and other retirement plans.
The EV Tax Credit ranges from $3,750 to $7,500 for 2023, and the exact amount and/or eligibility comes down to a variety of specifications like income, vehicle price, and vehicle specifications.
The Solar Tax Credit applies to those who have had solar energy systems installed in the past year and can be valued at up to 30% of the qualifying installation cost.
Using your understanding of Tax Deductions this year.
Whether you plan on taking the standard deduction or itemize this year, you can file your federal and state taxes seamlessly right in Origin. Origin’s embedded tax filing solution is powered by Column Tax, an IRS-vetted filing software that comes with a 100% accuracy and maximum refund guarantee. The best part? Filing your taxes with Origin is free for subscribers, so there are no hidden upsells or fees and no limits on tax scenarios accepted. Click here to learn more about Origin Tax.