What Can You File on Your Taxes? Deductions and Credits

Filing a tax return involves reporting your annual income to the government to calculate your tax liability. A key part of this calculation is the application of deductions and credits, which can lower the amount of tax owed. This guide provides a structured overview of the essential components of preparing and submitting a 2023 individual income tax return.

Information and Documents Needed to File

Preparing to file your taxes begins with gathering the correct documentation. You will need personal details for yourself, your spouse, and any dependents, including full names, dates of birth, and Social Security Numbers (SSNs) or Individual Taxpayer Identification Numbers (ITINs). You will also need your bank account and routing numbers for direct deposit or tax payments.

Next, collect all documents that report your income for the year. These forms represent income that must be reported to the Internal Revenue Service (IRS) and include:

• Form W-2 for wages and taxes withheld.
• Form 1099-NEC or 1099-K for self-employment or gig economy work.
• Form 1099-INT for interest income.
• Form 1099-DIV for dividends.
• Form 1099-B for proceeds from stock sales.
• Form 1099-R for retirement income.
• Form SSA-1099 for Social Security benefits.
• Form 1099-G for unemployment compensation.

Finally, assemble records for potential tax deductions and credits. These documents provide proof of expenses and include Form 1098 for mortgage interest, Form 1098-T for education expenses, property tax statements, and receipts for charitable contributions. You should also have a comprehensive record of payments for medical expenses.

Determining Your Filing Status and Deductions

You must determine your filing status based on your marital and family situation as of the last day of the year. The five statuses are:

• Single: For those who are unmarried, divorced, or legally separated.
• Married Filing Jointly: For married couples who wish to combine their incomes.
• Married Filing Separately: For married couples who choose to file individual returns.
• Head of Household: For unmarried individuals who paid more than half the cost of keeping up a home for a qualifying person.
• Qualifying Widow(er): For a surviving spouse with a dependent child.

After selecting a filing status, you must decide whether to take the standard deduction or to itemize deductions. The standard deduction is a specific dollar amount you subtract from your income. For the 2023 tax year, the standard deduction for Single filers is $13,850, for Married Filing Jointly it is $27,700, and for Head of Household it is $20,800.

Itemizing deductions involves adding up all your individual, eligible expenses. If your total itemized deductions exceed the standard deduction for your filing status, itemizing will result in a lower tax bill.

Exploring Common Tax Credits

Tax credits provide a dollar-for-dollar reduction of your tax liability. The Child Tax Credit (CTC) for the 2023 tax year is worth up to $2,000 per qualifying child under age 17. A portion of this credit, up to $1,600 per child, is refundable through the Additional Child Tax Credit (ACTC), meaning you could receive it back even if you do not owe any taxes. The credit begins to phase out for taxpayers with a modified adjusted gross income (MAGI) over $200,000 for single filers and $400,000 for married couples filing jointly.

The Earned Income Tax Credit (EITC) assists low-to-moderate-income working individuals and families. Eligibility depends on your income, filing status, and number of qualifying children. For 2023, the maximum credit ranges from $600 for those with no children to $7,430 for those with three or more, and your investment income must be $11,000 or less.

For higher education, two credits are available. The American Opportunity Tax Credit (AOTC) offers up to $2,500 per eligible student for the first four years of postsecondary education. The Lifetime Learning Credit (LLC) offers up to $2,000 per tax return for tuition and fees for courses with no limit on the number of years it can be claimed. Both credits have income limitations.

The Child and Dependent Care Credit helps taxpayers pay for the care of a qualifying individual to allow them to work. Qualifying individuals include children under 13 or a dependent incapable of self-care. For 2023, you can claim a percentage of up to $3,000 in expenses for one individual or up to $6,000 for two or more. The nonrefundable credit percentage is based on your adjusted gross income, ranging from 20% to 35%.

Exploring Common Itemized Deductions

If itemizing is more advantageous, you can claim several common expenses. The deduction for state and local taxes (SALT) allows you to deduct property taxes plus either state income or sales taxes. However, the total SALT deduction is capped at $10,000 per household per year ($5,000 for married individuals filing separately). This limitation means that even if your combined state and local tax payments exceed this amount, your deduction is restricted.

Homeowners can deduct the interest paid on their mortgage. This applies to interest on mortgage debt used to buy, build, or improve a primary or secondary home. For mortgages taken out after December 15, 2017, the deduction is limited to interest on up to $750,000 of mortgage debt, or $375,000 if married filing separately.

Medical expenses can be deducted, but only the amount that exceeds 7.5% of your adjusted gross income (AGI). Qualifying expenses include payments to medical practitioners, hospital care, prescription drugs, and health insurance premiums paid with after-tax dollars. You must have detailed records of all medical expenses to calculate the deductible amount accurately.

Charitable contributions to qualified organizations can be deducted if you itemize. The amount you can deduct is limited to a percentage of your AGI, up to 60% for cash contributions. You must maintain proper documentation for all donations, such as bank records or a written acknowledgment from the charity for contributions of $250 or more.

How to Submit Your Completed Tax Return

After preparing your tax return, you must submit it to the IRS. The most common method is to e-file using tax preparation software, including providers in the IRS Free File program. E-filing is faster and more secure than mailing a paper return, and you receive confirmation that the IRS has accepted your return.

Filing a paper return by mail is another option. You can download forms, like Form 1040, from the IRS website. After filling them out, you must mail them to the specific IRS service center for your location, as the address depends on whether you are enclosing a payment.

You can also hire a credentialed tax professional, such as a Certified Public Accountant (CPA) or an Enrolled Agent (EA), to prepare and file your return. These professionals are authorized to represent taxpayers before the IRS and can provide expertise on complex tax situations. They will handle the preparation and submission of all necessary forms on your behalf.

Once your return has been filed, you can monitor its status. If you are expecting a refund, you can track its progress using the “Where’s My Refund?” tool on the IRS website. This tool provides updates from the time your return is received until the refund is issued.