Filing for Tax Year 2024 is almost upon us, Texans – and we know what you’re thinking: “How can I save more on my taxes this year?” With the complexities of tax law, it’s easy to feel like you’re trying to solve the puzzle in the dark, but be confident, we’ve got the flashlight!

Here at TheWiseBook, we make it our mission to simplify the complexity of taxes, and in today’s post, we’ll break down 2 key tools that can help you save: tax credits and tax deductions. Think of them as your tax season superheroes, and we’re here to tell you how to use them to your advantage in Tax Year 2024 (that you’re filing in 2025).

What’s the Difference Between Tax Credits and Deductions?

Before you start wondering if these terms are just another way the IRS tries to confuse you, let’s clear it up. Here’s the simple explanation:

• Tax Deduction: this lower your taxable income. The lower your taxable income, the less you’re taxed on.

For example, let’s say you’re a Texas resident making $80,000. If you take the standard deduction of $14,600, your taxable income drops to $65,400. This means you’re only taxed on $65,400, not the full $80,000.

Alternatively, if you itemize deductions (such as mortgage interest, medical expenses, or charitable contributions), you can lower your taxable income even further by subtracting these eligible expenses from your total income.

• Tax Credit: this directly reduces the amount of tax you owe. 

For example, if you owe $3,000 in taxes and qualify for a $1,000 tax credit, you’ll only owe $2,000 after the credit is applied. 

That’s a dollar-for-dollar reduction! Some credits are refundable, meaning that even if you don’t owe any taxes, you could still receive that credit as a refund. 

How Can Deductions Help Me Save?

Tax deductions work like a generous friend who gives you some space. After lowering the amount of income the IRS will tax, you will have a smaller tax bill overall. For Tax Year 2024 (TY 2024), here are a few deductions that might help you save:

• Standard Deduction: As a Texas resident, we don’t have state income tax! But we do have the federal standard deduction, which is $14,600 for single filers and $29,200 for married couples filing jointly. For many Texans, this is the easiest route. You don’t need to keep track of a pile of receipts, just claim the standard deduction and move on.
• Itemized Deductions: As we mentioned earlier, if you’ve got substantial expenses – like high medical bills, mortgage interest, or generous charitable donations, itemizing might save you more. 

Here’s how it works: let’s say, if your total deductions from medical expenses, mortgage interest, and charitable donations add up to $20,000, and the standard deduction for a single filer is $14,600, itemizing will give you a bigger reduction, by lowering an additional $5,400 in your taxable income. But, here’s where we shine: you don’t need to do the math or wonder if you’re really getting the best deal. We’re here to ensure you won’t leave any money on the table!

Tax Credits – Your Superpower for Saving More

Now, let’s talk about tax credits. If deductions are the appetizer, then credits are the main course. 

Tax credits are so much more powerful because they directly reduce your tax bill. No need to do any math – they just lower the amount of money you owe. Here are a few credits you should be aware of:

• Earned Income Tax Credit (EITC): This is like a bonus check from the IRS. If you’re a low-to-moderate-income taxpayer, you could qualify for this credit, even if you don’t owe taxes. The best part? It’s refundable, so the IRS might just write you a check if you meet the requirements. 
• Child Tax Credit: Got kids? This one’s for you. For TY 2024, you could qualify for up to $2,000 per qualifying child. And, just like the EITC, part of this credit could be refundable. That means, even if your tax bill is small, you could still receive money back from the IRS.
• American Opportunity Tax Credit (AOTC): For those of you with college students in the family, this credit gives you up to $2,500 per eligible student for qualified education expenses. This one’s also refundable, so it’s a win-win for anyone paying for higher education!
• Saver’s Credit: If you’ve been putting money into your retirement savings (like an IRA or 401(k)), the Saver’s Credit could help you save even more. For TY 2024, you could get a credit of up to $1,000 ($2,000 if you’re married and file jointly). It’s a great way to get rewarded for planning ahead for your future.
• Clean Vehicle and Energy Credits: For those of you thinking about making your home a little greener, you might qualify for tax credits related to energy-efficient improvements, up to 30% of the cost of installing solar panels, new insulation, or energy-efficient windows. For those of you purchase a new or used electric vehicle (EV), you may be eligible for a tax credit of up to $7,500 for new EVs and up to $4,000 for used EVs. Additionally, if you install an EV charging station at home or related energy storage, you could receive a credit of up to $1,000. A great way to save money while saving the planet!

These tax credits are like your superpowers when it comes to lowering your tax bill. Check them out to see if you qualify and take full advantage of them during tax season. 

Maximizing Savings for Business Owners and High-Income Earners in Texas

Alright, now let’s talk to our business owners and high-income Texans – we see you. Navigating tax credits and deductions gets a little more complicated when your income is on the higher end, but don’t fret! The good news is that there are plenty of opportunities to save, and TheWiseBook is here to help you figure it all out.

• Business Deductions: Whether you run a small business or a high-end firm in Texas, there are tons of deductions available for you. These include deductions for business expenses, home office costs, and even depreciation on equipment. If you’re working from home, make sure to check out the home office deduction – a great way to deduct some of your home expenses.
• Retirement Contributions: Making contributions to your retirement accounts like a 401(k) or IRA is a smart way to reduce your taxable income. The more you put away for your future, the less the IRS will take now. It’s a win-win!
• Qualified Business Income Deduction (QBI): For small business owners, freelancers, or independent contractors, the QBI deduction lets you deduct 20% of your business income. This is especially helpful if you operate as a sole proprietorship, partnership, S corporation, or LLC.

Tips for Maximizing Your Savings

By understanding the difference between tax credits and deductions, you can put more money in your pocket and feel confident going into tax season. Here are a few tips to make sure you’re getting the most out of both:

– Keep good records: From business receipts to charitable contributions, maintaining organized records makes claiming deductions and credits much easier.

– Start planning early: The earlier you start, the more opportunities you have to maximize your tax savings. Waiting until the last minute is a risky way to miss out on potential deductions and credits.

– Consult a pro: Taxes can be complicated, especially if you’re a high-income earner or a business owner. Don’t hesitate to reach out to TheWiseBook for expert advice – we love making it simple and getting you win the game!