Saving Money, Tips

Easiest Tax Credit and Deductions for 2020

This post has been updated with the easiest tax credits and deductions for 2020. This post does contain affiliate links for products that I trust and use myself. If you buy something with the link, I will receive a small commission at no additional cost to you.

Tax Credit for 2020

Every tax season I wonder to myself, “What random tax credit and deductions can I qualify for this year?” Some people cut coupons, but I choose to spend my time researching how to reduce my taxes. We all have our vices.

So far, my favorite random deduction is the California Renter’s credit. Sure, this credit is only for $60 but that is $60 more dollars which I can invest! And I’m not in the habit of handing out $60 for free.

I found this deduction when filing my free tax return with FreeTaxUSA. I have used them for the last four years and highly recommend their services. They offer a free tax deduction optimization tool that easily looks through your tax information to see if you have anything additional you qualify for.

While I’m sure there are more of these special snowflake deductions out there, I wanted to compile a list of common credits and deductions. So here is an organized list of them! Many of which you probably qualify for and will save you several thousand dollars each.

These are all taken directly from irs.gov and I have included a summary of what you need to qualify. Note that many of these are intended to help those that are low income or families!

Without further ado, let’s save you some money!

Tax Credit (s)

You can easily check if you qualify for federal tax credits by utilizing FreeTaxUSA’s free refund maximizer tool! I love this because I always qualify for more credits than I was expecting and money is the best gift you can give yourself this tax season.

TaxFreeUSA is one of the IRS’s recommended filing software and most filers qualify for their free federal filing! That means it could cost you as little as $0 to file with FreeTaxUSA.

Income & Savings Tax Credit

Earned Income Tax Credit

For low-income individuals and families. It allows you to receive a tax credit that ranges between $538 to $6,660. You might qualify if you have NOT earned more than $15,570 if filing single and $21,370k if filing as a couple in 2020.  All of these amounts can vary based on your income and number of qualifying dependents.

Saver’s Tax Credit

If you are low income, NOT a full-time student, and NOT claimed on your parent’s tax returns. This credit gives you money back if you contribute to a retirement plan!  The cut off for this credit is an AGI of $39,000 for 2020.

Foreign Tax Credit

If you pay taxes in a foreign country, then you can take this credit to reduce your tax liability in the U.S. I’m particularly excited about this one because I have been out of the country all year!

Health Care Tax Credit

  • Premium Tax Credit- if you or a family member enrolled in health insurance through the Marketplace and were NOT eligible for an employer-sponsored plan or eligible for government coverage. As long as you are within certain income limits, your premiums were paid, and you cannot be claimed as a dependent of someone else you may qualify.

Education Tax Credit

American Opportunity  Tax Credit

If you are a student at an accredited university and have not finished the first four years you may qualify.  This credit covers eligible education expenses for the first four years of school up to $2,500. The best part? If this credit brings your taxes to zero, you can receive the remaining amount (up to 1k) REFUNDED!

Lifetime Learning Tax Credit

If you’ve paid for qualified expenses for higher education and you are enrolled at an eligible school, you might qualify. (If you are a parent or third party paying for someone else’s education you might qualify too!)

Tax Deductions

Education Tax Deductions

Student Loan Interest Tax Deduction

You can deduct up to $2,500 as long as your modified AGI is less than 80,000 as a single filer! This one is super easy to qualify for and I receive it pretty much every year. 

Work-related Educational Expenses Tax Deduction

You might be eligible if your education expenses maintain or improve your job skills OR a law requires you to take it to keep your status or occupation (think realtors, medical professionals, lawyers, teachers, etc.).

You can deduct tuition, supplies, lab fees, some travel costs, and more!

Health Care Tax Deductions

HSA Tax Deduction

If you contribute to your Health Savings Account, you can qualify for this deduction even if you do not itemize. AND the interest on assets in your HSA is tax-free, making the HSA an excellent retirement planning vehicle. 

Medical and Dental Expense Tax Deduction

If you itemize your deductions, you could qualify for a deduction for medical expenses that exceed 7.5% of your adjusted gross income. This includes payments to medical practitioners, hospital/ nursing home fees, prescription drugs, and more.

Investment-related Tax Deductions

You can easily check if you qualify for federal AND state tax deductions by utilizing FreeTaxUSA’s free refund maximizer tool! I love this because I always qualify for more deductions than I was expecting and money is the best gift you can give yourself this tax season.

TaxFreeUSA is one of the IRS’s recommended filing software and most filers qualify for their free federal filing! That means it could cost you as little as $0 to file, which is a huge saving all by itself!

IRA and 401k Deduction

Traditional IRAs and your Traditional 401k count as a tax deduction for the current tax year, much like your 401k.

These both reduce your tax liability by putting away “before-tax dollars”.  Since your 401k takes this money before it is taxed in your paycheck, there is not much you have to do here. For Traditional IRAs, you deposit money in from a paycheck that was taxed and you receive the money-back at the end of the year when you file your tax refund.

For 2020, the contribution limit for traditional IRAs is $6,000 and the limit for your 401k is $19,500.

Roth IRAs and Roth 401ks are NOT deductible because you are paying the taxes now so that you will not be taxed in retirement.

Capital Losses Deduction

This happens when you sell an asset at a loss. Some examples are selling your house, home furnishings, stocks, and bonds, etc that are held as investments. This does not apply to personal-use properties (i.e. anything you live in or use). 

Bad Debt Deduction

If someone owes you money that you can’t collect that is either business or personal.

This is for bad business debts such as, loans to clients, suppliers, distributors, employees, customers, or business-loan guarantees.

It also includes personal debts, which are deemed “worthless” if you can prove you’ve taken reasonable steps to collect. You do NOT need to prove this in court as long as you can show that a judgment from the court would find it uncollectable.

I hope you enjoyed this post! Be sure to subscribe and check out my last post, 4 Best Financial Tips for 2020!

Kathryn Rucker is a sales consultant and content writer. With 7+ years of sales experience, she is passionate about helping businesses and individuals grow their sales pipelines by improving their online presence.

She has been traveling full-time since 2018 thanks to the location and financial independence she has gained from her business, Rucker Sales Consulting. You can connect with her on Linkedin!

Kathryn Rucker is a sales consultant and content writer. With 7+ years of sales experience, she is passionate about helping businesses and individuals grow their sales pipelines by improving their online presence.

She has been traveling full-time since 2018 thanks to the location and financial independence she has gained from her business, Rucker Sales Consulting. You can connect with her on Linkedin!

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