Tax Credit for Solar Panels
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31 Tax Credits and Deductions That Could Save You Thousands

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Tax Credit for Solar Panels
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To Your Credit

While some of the best credits and deductions required taxpayers to take action before Dec. 31, there are others that can be used right up to the filing deadline. Whenever possible, though, seek out credits rather than deductions: Each dollar in tax credits is one less dollar in taxes paid, while deductions that reduce taxable income offsets taxes by only 10 to 39.6 cents for every dollar deducted, depending on the tax bracket. With help from Melinda Kibler, a certified financial planner and enrolled agent with Palisades Hudson Financial Group in Fort Lauderdale, Florida, we found a host of 2020 deductions and credits to choose from.


Related: Tax Law Changes You Need to Know Before Filing a Return in 2021

Standard Deduction
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Standard Deduction

The passage of the Tax Cuts and Jobs Act in 2017 almost doubled the standard deduction in 2018, pushing it from $9,350 for those filing as head of household to $18,000. There was another boost in 2019 to $18,350 for the head of household and the amount is being raised again for 2020 to $18,650 (married people filing jointly also bumped up $400 from $24,400 to $24,800). But it also eliminated a bunch of helpful credits and deductions, including the personal exemption, which was $4,050 in 2017.

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Charitable Deductions

That higher standard deduction makes it difficult to put together enough charitable deductions to make it worth itemizing. But this year you can take an above-the-line deduction up to $300 for cash contributions to IRS-approved charities thanks to the temporary COVID-19 tax relief measure, the CARES Act. But if you'd prefer to itemize, it is possible. While it's too late to make charitable donations for 2020, Kibler suggests tracking down receipts for donations made throughout the year, especially of cash or goods. Giving to eligible nonprofits, religious organizations, and government organizations (such as a school or public library) are deductible. "If you dropped off a bag of clothing at a local charity or gave them $5 at the cash register of your grocery store, make sure to track these contributions so you get the highest tax benefit possible," Kibler says.


Related: What the Pandemic Means for Your Taxes

American Opportunity Tax Credit
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American Opportunity Tax Credit

While tuition and fees deductions have dried up, the American Opportunity Tax Credit remains an option for eligible students — not grad students or long-term undergrads; it's available only during the first four years of college — with at least half-time status at an accredited school. It covers all of the first $2,000 in expenses and 25% of the next $2,000 (for a total $2,500). Schools will send students a 1098-T showing the amount paid last year in tuition and fees, but even expenses including books, supplies, and equipment such as computers can be offset. If the 1098-T does not max out the allowed credit, hold onto those receipts for supplies.


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Lifetime Learning Credit
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Lifetime Learning Credit

This is the tax credit for the older student. Anyone taking classes at an eligible educational institution to acquire or improve job skills is eligible, even students taking just one class well after four years of undergraduate education. There are limits: Students are credited for only 20% of $10,000 in expenses ($2,000 is the maximum), though it can be applied to tuition, fees, books, supplies, and equipment. Individuals with an adjustable gross income between $58,000 and $68,000 (or between $116,000 but less than $136,000 for married filing jointly), will get a reduced amount. If it's over those thresholds, you can't claim the credit at all.


Related: 20 Valuable Tax Breaks for Seniors

Student Loan Interest Deduction
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Student Loan Interest Deduction

Students can still deduct up to $2,500 for interest paid on student loans — but get less if median adjusted gross income exceeds $70,000 ($140,000 for joint returns) and nothing if it's $85,000 or more ($170,000 or more for joint returns).

Child Tax Credit
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Child Tax Credit

Those who took advantage of the child tax credit in 2017 could claim a $1,000 credit on their income tax return for each child under 17 who qualified. In 2018, that doubled to $2,000 per qualifying child, and the same is true for 2020. The credit was also nonrefundable in previous years, but can now be refunded to 15% of earned income over $2,500, or up to $1,400. To qualify, children have to be 16 years or younger on the last day of 2020, be related to you, claimed as a dependent, be a documented U.S. citizen or resident, have lived with you for half of the tax year (though absences related to school, vacation, military service, and medical care are exempt) and must not provide more than half of his or her own support. The credit phases out for married taxpayers filing jointly with an income of $400,000 (or $200,000 for all other taxpayers).


Related: 15 Interesting and Fun Tax Facts to Lighten Up Tax Time

Dependent Care Credit
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Dependent Care Credit

If a child does not qualify for the Child Tax Credit because they are over 17, they may still be eligible for a $500 credit under new tax laws. The credit also applies for dependents who are elderly or disabled. If your earned income was higher in 2019 than in 2020, you can use the 2019 amount to figure your ACTC for 2020 as part of the Taxpayer Certainty and Disaster Tax Relief Act of 2020.

Earned Income Tax Credit
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Earned Income Tax Credit

The Earned Income Tax Credit is for low- and moderate-income taxpayers with "earned income" such as wages, salaries, or self-employment pay (but not Social Security, unemployment, or investment income). The limits are strict, ranging from $15,820 for a single person with no children to $56,844 for a married couple with three children or more. The credit's value is worth $543 to $6,728 depending on filing status and number of dependents, but requires recipients to have less than $3,600 in investment income for the year.  There are also new rules due to coronavirus that are intended to help: You can use either your 2019 income or your 2020 income to calculate your EITC. 


Related: 11 Situations Where It's Probably a Bad Idea to Do Your Own Taxes

Premium Tax Credit
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Premium Tax Credit

If you or your family have health insurance from a government-run marketplace built through the Affordable Care Act, you may be eligible for this credit. Income is limited to household income for the year that is at least 100 percent but no more than 400 percent of the federal poverty line for the family size, but the credit is usually equal to the cost of the second-lowest silver plan. Taxpayers can get this credit in advance to offset monthly premium bills, but claim too much and it must be paid back when filing. Those who get too little can claim the remainder when submitting returns.

Savers Credit
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Savers Credit

It isn't much, but the Savers Credit gives back to low- and moderate-income people who contribute to a qualified retirement account. Taxpayers can get a credit for 10%, 20%, or 50% of the first $2,000 contributed, depending on income and family size. To get the minimum 10%, the maximum allowed income is $33,000 for single filers, $49,500 for the head of a household, and $66,000 for joint filers. Also, beginning in 2019, if you're the designated beneficiary you may be eligible for a credit for contributions to your Achieving a Better Life Experience account for persons with disabilities.


Related: What You'd Be Paying in Taxes in 34 Other Countries

Mortgage Interest Deduction
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Mortgage Interest Deduction

If you bought a home and had the mortgage in place before Dec. 15, 2017, you are still eligible to deduct interest on up to $1 million in mortgage debt. If you happened to sign on that date or later, though, your threshold drops to $750,000.

Mortgage Interest Credit
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Mortgage Interest Credit

Taxpayers who get a Qualified Mortgage Credit Certificate worth up to $7,500 from a local or state government may be able to claim the Mortgage Interest Credit. The home must be the taxpayer's primary residence, and interest payments can't go to a taxpayer's relative. The credit is worth up to $2,000, and unused portions may be carried forward to the following year.


Related: Why Billionaires Pay Less Tax Than You

Credit for the Elderly or the Disabled
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Credit for the Elderly or the Disabled

Taxpayers 65 or older — or younger but retired or on permanent and total disability — may be eligible for a credit. Taxable income must be below $17,500 (or $20,000 if married and filing jointly) and nontaxable Social Security, pension, or disability benefits must be below $5,000. If both partners qualify and file jointly, the income limits are $25,000 for taxable income and $7,500 for nontaxable benefits. The credit itself ranges between $3,750 and $7,000.

IRA Deduction
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IRA Deduction

Whether it's through an employer or private plan, a traditional Individual Retirement Arrangement funded with pretax money — unlike a post-tax Roth IRA — is deductible up to a certain limit.  For 2020, the maximum contribution is $6,000 (or $7,000 for those 50 or older). There are also deduction limitations depending on the taxpayer's income and access to an employer-sponsored retirement account.


Related: Strange Taxes Around the World That We Don't Have

Medical Expenses Deduction
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Medical Expenses Deduction

Until recently, taxpayers 65 years or older could deduct total medical expenses that exceeded 7.5% of their adjusted gross income. Even married couples that included one person 65 or older were eligible, but younger, single taxpayers could deduct only medical expenses that exceeded 10% of their AGI. For 2017, that threshold was slated to jump to the 10% of AGI for everyone, including those over 65; the recent tax reform set the threshold for everyone at 7.5% of gross income and made it retroactive to 2017. It stays in place for 2020.

SEP-IRA Contributions
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SEP-IRA Contributions

A longtime friend to small-business owners and freelancers, the Simplified Employee Pension IRA offers higher contribution limits than a traditional IRA. In 2020, as their own employer, business owners and freelancers can contribute up to 25% of their annual income or $57,000, whichever is lower. As with a traditional IRA, contributions made before the tax-filing deadline (without an extension) can be applied to the previous year. 


Related: Is Your Tax Bill Too High? 22 Ways to Save

Solo 401(k) Contributions
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Solo 401(k) Contributions

Unfortunately, taxpayers can't just set one of these up before the tax deadline and save some cash. The one-participant 401(k), or solo or self-employed 401(k), requires you to file for a federal Employer Identification Number and set up the account by Dec. 31. But once a solo 401(k) is established, taxpayers can make contributions right up to the tax-filing date in April (or mid-October, with an extension). Total contributions can't exceed $57,000, but that's still nearly four times the maximum employee contribution to a standard 401(k) of $19,500.

Bonus Depreciation
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Bonus Depreciation

If you bought new office furniture, computer servers, cranes, end loaders, cattle, trucks, or taxis for a business last year, you may be able to write off more from them than you thought. Even if you built oil derricks, warehouses, office space, or utility plants after Sept. 26, 2017, the bonus depreciation you could claim on the first year of owning those assets increased from 50% just a day before to 100% "expensing" from Sept. 27 onward. Recent tax changes also extended bonus depreciation from items bought or built new to both new and used assets. That "expensing" applies to productions (qualified film, television, and/or staged performances) and even certain fruit or nuts. The law also increased the maximum deduction from $500,000 to $1 million, with the phase-out threshold increasing from $2 million to $2.5 million.


Related:  Most and Least Tax-Friendly States for Seniors

Standard Mileage Rates Have Dropped
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Car Expenses

For 2020, self-employed people can deduct 57.5 cents a mile driven for business purposes, due to drop 1.5 cents in 2021. That said, detailed mileage logs are required. Writing down the miles driven (odometer readings at the beginning and end of the trip help), the date, the business purpose of the trip, and the destination should be adequate. Taxpayers can also take a 17-cent-per-mile deduction for eligible miles driven for medical and certain moving purposes in 2020. The standard mileage rate for charitable activities is unchanged at 14 cents. 

Home Office Deduction
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Home Office Deduction

This one is tricky, as simply working on the couch or at a kitchen table doesn't cut it. A home office has to be a dedicated space for working and meeting clients and customers. Furthermore, office-related utilities including telephone, internet, and even heat and electricity have to be parsed out separately. You can try to determine which portion of a home's expenses, taxes, insurance, and depreciation is dedicated to a home office; a simplified version multiplies the square feet of the room by $5 (if the total size is 300 square feet or smaller). That said, you can only get this deduction if you're self-employed: It disappeared for employees in 2018.


Related: The Best and Worst States for Middle-Class Taxpayers

State and Local Tax Deduction
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Adoption Credit
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Adoption Credit

You may be able to take a tax credit of up to $11,300 for qualified expenses paid to adopt a child in 2020. Those expenses include adoption fees, court costs, attorney fees, travel expenses (including amounts spent for meals and lodging), and readoption expenses for a foreign child. Those credits apply to adoptions of anyone under 18 years old or physically or mentally incapable of taking care of themselves. If your modified adjusted gross income is more than $214,520, the credit is reduced; those with MAGI of $254,520 or more can't take the credit.

Electric Vehicle and Plug-In Hybrid Tax Credit
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Electric Vehicle and Plug-In Hybrid Tax Credit

Despite fears it would be eliminated, this credit still offers buyers of qualified electric or plug-in hybrid vehicles up to $7,500 for the purchase. While this credit isn't going to be around forever, it's still a formidable tool for boosting sales of these fuel-efficient vehicles in spite of low gas prices and the market's hunger for less-efficient SUVs.


Related: 15 Reasons I Drive an Electric Car

Home Sale Exclusion
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Home Sale Exclusion

Most people who sell a home know that, if they've sold at a gain, they may exclude up to $250,000 of it if single or $500,000 if married filing jointly. Granted, you actually had to live in that home for two of the past five years (military, foreign service, and intelligence personnel are exempt). What most homeowners don't realize is that the gain isn't only on the sale price of the home, but on improvements made, real estate agent sales commissions, closing costs, recording fees, and survey fees. Kibler suggests keeping clear records of all of it in case of an audit and to keep a big chunk of the gain tax-free.

Foreign Tax Credit
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Foreign Tax Credit

If you paid or accrued income tax in a foreign country or U.S. possession in 2020, you can use it as a credit against U.S. income tax. If you already exclude foreign earned income, foreign housing costs, foreign possessions, or income from Puerto Rico exempt from U.S. tax, you aren't eligible. Also, your foreign tax credit can't be more than your U.S. tax liability multiplied against a fraction made up of taxable income from outside the United States and total taxable sources.


Related: Where Your Federal Income Tax Money Really Goes

Foreign Earned Income Exclusion
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Foreign Earned Income Exclusion

If you live in a foreign country for at least 330 full days out of the year, you can have up to $107,600 of your salaries, wages, professional fees, and other amounts you get as an employee excluded from federally taxable income. You may also exclude amounts your employer pays for rent, furniture rental, parking, or other items.

HSA Contribution Limits
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HSA Contribution Limits

The IRS will allow taxpayers to make tax-free contributions and withdrawals from Health Savings Accounts as long as they go toward qualifying medical expenses. High-deductible health plans — with premiums ranging between $1,400 and $6,900 for singles and $2,800 and $13,800 for families — allow taxpayers to contribute up to $3,550 for single filers or $7,100 for families to HSAs without any tax implications.


Related: 10 Types of Retirement Accounts to Help Build Your Nest Egg

Nonbusiness Energy Tax Credit
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Non-Business Energy Tax Credit

The Non-Business Energy Property Credit covers materials that meet the efficiency standards of the Department of Energy. This includes home insulation, exterior doors, exterior windows and skylights, some roofing materials, electric heat pumps, various water heaters, central air conditioning, biomass stoves, furnaces, boilers, and advanced circulation fans. You can claim 10% of the minor improvements or 100% of the big ones, but you'll get only a maximum $500 credit for all years of improvements combined. It also sets credit limits for windows ($200), furnaces or boilers ($150), fans ($50), and bigger jobs ($300).

Residential Renewable Energy Tax Credit
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Residential Renewable Energy Tax Credit

If you're thinking about going solar, installing a small windmill, looking into geothermal heat, or experimenting with fuel cells, there's tax incentive to do so. You can get a 30% rebate on any of the above, as the program has been extended through 2021.


Related: 11 Surprising Things That Tesla Makes That Aren't Electric Cars

Casualty, Disaster and Theft Losses
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Casualty, Disaster, and Theft Losses

In previous years, a taxpayer could get a deduction for any mishap that occurred in their home. But starting in 2018, the damage must have occurred during a federally declared disaster for a taxpayer to get that same deduction. This deduction may return in full in 2025, but for now it's limited to disaster areas.

Work-Related Education
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Work-Related Education

The self-employed, including those with freelance income, can write off educational expenses for workshops, webinars, books, or other material that maintain or improve skills. While educational expenses to meet the minimum requirements of a trade or business — or related to getting into a new line of work — don't qualify, refresher courses, courses on current developments, and academic or vocational courses would. The deduction is the amount by which qualifying work-related expenses is greater than 2% of adjusted gross income.


Related: 46 Simple Ways to Make Extra Money