Ask Chuck: Tips for saving money on income taxes
Dear Chuck,
We have always filed our taxes taking the standard deduction. A friend at church suggested I might qualify for a greater deduction because of our increased giving in 2023. What do you think is the best option?
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Paying Caesar What Is Caesar’s
Dear Paying Caesar What Is Caesar’s,
Charles Schwab notes that for most people, total itemized deductions may be less than the standard deduction. My advice is simple, take whichever provides the greater deduction. It requires more time and patience to go the itemized route, but you may be rewarded in unexpected dollars refunded to you in overpayment of taxes. The do-it-yourself tax filing software makes it as easy as filling in the blanks. Just be sure you have receipts.
April 15th is the tax filing deadline. If you are filing an extension, the deadline is October 15th.
The standard deduction for the 2023 tax year is set at $13,850 for singles, $27,700 for those married and filing jointly, and $20,800 for heads of households. Taking advantage of available tax credits and itemizing deductions, however, can significantly lower your tax bill. Simply total your allowable itemized deductions. If the amount is higher than the available standard deduction (see above), then itemize. Take your time to avoid these common errors.
If you are preparing your own taxes this year and have yet to file or are interested in finding ways to increase your tax savings for next year, keep reading. Due to limited space, I am only addressing some commonly overlooked credits and deductions.
Tax credits
Make sure to record all possible tax credits because they reduce the tax bill dollar for dollar.
- The Child Tax Credit (CTC)
Limited to $2,000 for every dependent under 17 with $1,600 refundable for the 2023 tax year. Details here.
- The Child and Dependent Care Credit (CDCC)
This credit covers a percentage of daycare or similar costs for children under 13. You (and your spouse, if married) must have earned income from a job or be full-time students to qualify. If you run the maximum amount through a plan at work but spend more on work-related childcare, an extra dollar amount can be claimed. For tax year 2023, the maximum amount allowed to claim is $3,000 for one dependent or $6,000 for two or more. This does not apply when adjusted gross income exceeds $438,000. Details here.
- The Earned Income Tax Credit (EITC)
This applies to those who lost a job, took a pay cut, or worked fewer hours during the year. It ranges from $632 to $7,830. The amount varies depending on income, marital status, and family size. A tax return must be filed to qualify for the refund. If you failed to claim it in the past, you can file and claim an EITC refund for the three previous tax years.
- Education credits
American Opportunity Tax Credit (AOC): Maximum of $2,500 for the cost of tuition, books, equipment, and school fees — without including living expenses or transportation.
Lifetime Learning Credit: Twenty percent of the first $10,000 paid toward tuition and fees. Maximum of $2,000.
Itemized deductions
TurboTax reported that 45 million Americans itemized 1.2 trillion dollars’ worth of tax deductions. The total for those who claimed the standard deduction came to $747 billion.
- State or Local Sales Taxes
The income tax deduction is usually larger unless you paid significant sales tax for big-ticket items like cars, trucks, boats, airplanes, etc., or major home improvements. This is especially helpful for those living in income-tax-free states. You can also total (with proof) all sales tax paid during the year. The total itemized deductions for all state and local taxes are limited to $10,000 per year.
- State Tax paid in 2022 return
If you owed taxes last year, include that with your state tax itemized deduction on the 2023 return, plus your state income taxes (if applicable).
- Refinanced mortgage points
Deduct the points over the life of the loan. $1,000 of points spread over 30 years gives a $33/year deduction. If the house was sold or refinanced and the loan is paid off, any remaining points can be applied that year.
- Moving expenses
Active duty military personnel who relocate can deduct these expenses unless reimbursement was provided by the government. This includes costs of travel, lodging, and the moving of possessions.
- Out-of-pocket charitable contributions
Besides the dollar amount given, you can write off expenses incurred while serving: 14 cents per mile if driving for charity, ingredients for soup kitchen, stamps purchased for a fundraiser, etc. Be sure you have receipts for monetary donations or gifts in kind to qualified charities.
- Student loan interest
A student, not claimed as a dependent, can deduct up to $2,500 of interest paid by you or someone else. Details.
- Jury pay paid to employer
If an employer pays your full salary but requests that jury fees be turned over to the company, you can deduct them.
Be sure to note that gambling winnings are considered taxable income. Losses are deductible but cannot exceed winnings.
Retirees need to pay attention to the 13 overlooked tax deductions for retirees.
I do not know anyone who finds pleasure in filing their taxes. However, I enjoy seeing how much I can reduce them by carefully reporting all possible deductions. As citizens of this nation, we are called to render unto Caesar the things that are Caesar’s and to God the things that are God’s.” (Luke 20:25 ESV) It is good stewardship to pay your full taxes after taking advantage of all available credits and itemized deductions.
I’d like to invite you to join a free Crown Bible study on the YouVersion app. We have several devotionals regarding money and stewardship that will help bring God’s Word into your daily life.
Chuck Bentley is CEO of Crown Financial Ministries, a global Christian ministry, founded by the late Larry Burkett. He is the host of a daily radio broadcast, My MoneyLife, featured on more than 1,000 Christian Music and Talk stations in the U.S., and author of his most recent book, Economic Evidence for God?. Be sure to follow Crown on Facebook.
