Here are a few facts about credits and deductions that can help you with year-round tax planning:
- Taxable income is what’s left after someone subtracts any eligible deductions from their adjusted gross income, including the standard deduction. Some taxpayers may choose to itemize their deductions to lower their adjusted gross income.
- The Tax Cuts and Jobs Act made changes to itemized deductions. In comparing these changes, many individuals who used to itemize may find it more beneficial to take the standard deduction.
- As a general rule, if a taxpayer’s itemized deductions are larger than their standard deduction, they should itemize. Depending on the situation, some taxpayers may even be required to itemize.
Taxpayers may be able to subtract tax credits from the total amount of tax they owe. To claim a credit, taxpayers should keep records that show their eligibility for it. Some major tax credits include the child tax credit and the child and dependent care credit, the American opportunity credit or lifetime learning credit, and the earned income tax credit.
* This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax professional.
Tip adapted from IRS.gov7
- IRS.gov, February 21, 2021