Tax Credits and Deductions

Learn about tax relief, benefits, and incentives.

Tax Reform: Big Changes for 2018

The Tax Cuts and Jobs Act made big changes to how the government calculates your income taxes. These changes apply to your 2018 federal tax return, due April 15 (April 17 in Maine and Massachusetts).

The new law may simplify filing and reduce taxes for many people. It

  • Lowers tax rates

  • Increases the standard deduction

  • Doubles the child tax credit

  • Creates a new “other dependents” credit

Or, depending on your situation, the new law may make your tax bill the same or higher than last year. It

  • Eliminates the personal and dependent exemptions

  • Limits or eliminates many itemized deductions

The Internal Revenue Service (IRS) expects that most people will pay less tax for 2018 than they did for 2017.

Tax Rates Go Down

There are still seven tax rates, but most of them have gone down. The top tax rate is now 37%, down from 39.6% last year. Compare the 2018 and 2017 tax rates and brackets to see where you fall.

Standard Deduction Grows

The law nearly doubles the standard deduction for most filers. The standard deduction for 2018 is

  • $12,000 for individuals

  • $18,000 for heads of household

  • $24,000 for married couples filing jointly

Standard Deduction Versus Itemizing

Deductions lower the amount of income that you pay tax on. You can take the standard deduction or you can itemize deductions. Your standard deduction may now be greater than your total itemized deductions. Learn how to decide to take the standard deduction or to itemize.

Personal and Dependent Exemptions Are Eliminated

Last year, you could take exemptions of $4,050 each for yourself, your spouse, and your dependents. These exemptions lowered your taxable income. Even though personal exemptions are no longer available, the higher standard deduction and increases in other credits may help offset their loss.

Child Tax Credit Doubles to $2,000

Tax credits are better than deductions because they reduce your tax bill dollar-for-dollar. The Child Tax Credit now reduces your taxes up to $2,000 per child under 17. Many more families will qualify for the credit as income limits have gone up to

  • $200,000 for individual filers, compared to $75,000 last year

  • $400,000 for married filing jointly, compared to $110,000 last year

This is a “refundable” credit, meaning you can get up to $1,400 per child back even if your 2018 tax bill is $0. You must claim the credit on your tax return to get it.

Social Security Number Now Required for Child Tax Credit

Any child you claim for the Child Tax Credit must now have a Social Security number. They must have the number by the due date of your tax return (including extensions).

New $500 Credit for Other Dependents

You can now claim a credit for your other dependents, including kids 17 and up and other relatives. To qualify, a dependent must be a U.S. citizen, U.S. national, or U.S. resident alien.

Many Itemized Deductions Have Been Eliminated or Capped

These are many of the changes. If you itemize, check for new rules in each category.

  • State and Local Taxes

    • Deductions for state and local taxes are now limited to $10,000 combined. This includes income, sales, and property (including real estate) taxes.

  • Home Ownership

    • Home equity loan interest is now deductible only if you use the money to build or renovate your home.  

    • Mortgage interest deductions on homes bought in 2018 have a new, lower limit. You can deduct interest on mortgages up to $750,000 for homes bought after December 15, 2017. The limit on homes bought on or before that date remains at $1,000,000.

  • Moving

    • You can no longer deduct moving expenses. The exception to this rule is for active duty military members who are moving due to a change in duty station.

  • Personal Casualty and Theft Losses

    • You can deduct personal casualty and theft losses only if they are related to a federally declared disaster. Each claim must include the FEMA code assigned to the disaster.

  • Charitable Contributions

    • The deduction for charitable donations has gone up. You can now deduct cash contributions of up to 60% of your adjusted gross income. Before 2018, it was 50%.

  • Medical and Dental Expenses

    • For 2018 only, you can deduct unreimbursed medical and dental expenses that exceed 7.5% of your adjusted gross income. Before, expenses had to exceed 10%. For 2019, this amount returns to 10% of your adjusted gross income.

  • Miscellaneous Itemized Expenses eliminated include

    • Employee business expenses

    • Investment expenses from pass-through entities

    • Safe deposit box fees

    • Hobby losses

    • Job search expenses

    • Employment-related educational expenses

    • Investment expenses, including investment management fees

    • Tax preparation fees

Learn more about the tax law changes with Tax Reform: Basics for Individuals and Families. For specific questions, try out the Interactive Tax Assistant.

Earned Income Tax Credit

If you earn a low to moderate income, the Earned Income Tax Credit (EITC)  can help you by reducing the amount of tax you owe. To qualify, you must meet certain requirements and file a tax return even if you do not owe any tax or are not required to file. If EITC reduces your tax to less than zero, you may get a refund.

Who Qualifies for EITC?

You qualify for EITC if:

  • You have earned income and adjusted gross income within certain limits; AND
  • You meet certain basic rules; AND

You either:

  • Meet the rules for those without a qualifying child; OR
  • Have a child who meets all the qualifying rules for you or your spouse if you file a joint return.

EITC has special rules for members of the military, members of the clergy and taxpayers with certain types of disability income or children with disabilities.

EITC Help

Use the EITC Assistant to find out your filing status, if your child qualifies, if you are eligible, and the amount of credit you may receive.

Tax Benefits for Education

You can find a wide range of tax benefits to help pay for elementary and secondary school, college, and other education expenses.

Keep in mind, education tax credits, deductions, and savings plans you’ve used in the past may have changed because of the new tax law.

Credits

An education credit reduces the amount of tax you owe. There are two types of education credits:

  • American Opportunity Tax Credit - This helps pay for education expenses during the first four years of higher education. You can get a maximum annual credit of $2,500 per eligible student. And if the credit lowers your tax to zero, you may get a refund.
  • Lifetime Learning Credit - This credit is for tuition and related expenses at a qualifying educational institution. It can help pay for undergraduate, graduate, and professional degree courses, and classes to get or improve job skills. You can claim up to $2,000 per year and there is no limit on the number of years you can claim the credit.

There are income limits to qualify for these credits. You cannot claim both credits for the same student and the same expenses.

Deductions

A deduction reduces the amount of your income that is subject to tax. This can lower the amount of tax you have to pay. You may be able to claim these education deductions:

  • Student loan interest - You may qualify for a deduction on the interest you paid for a student or education loan.

Savings Plans

Education savings plans help parents and students save for elementary, secondary, and higher education expenses. The money you save in and withdraw from them for qualified education expenses is tax-free. There are two types of savings plans:

Scholarships and Fellowships

A scholarship is a benefit paid to a student at an educational institution to help advance their studies. The student may be either an undergraduate or a graduate. A fellowship is paid to an individual to promote study or research.

A scholarship or fellowship is only tax-free if you are a degree candidate at an eligible educational institution and you use it to pay for qualified education expenses.

Exclusions from Income

You don’t have to pay tax on payments you receive from your employer for tuition, books, and supplies for a course you’re taking. But you can’t claim these same education expenses as the basis for any other deduction or credit, including the Lifetime Learning Credit.

Find Out if You Qualify for Education Benefits

Use the Interactive Tax Assistant to see if you’re eligible for education credits or deductions. This includes the American Opportunity Credit, the Lifetime Learning Credit, and the student loan interest deduction.

Energy Tax Incentives

Energy efficient appliances and energy-saving improvements don’t just cut your energy bills. They can also get you or your business tax credits, rebates, and savings during sales tax holidays. Tax credits reduce the amount of tax you owe, and rebates give you cash back on your purchase.  

Find out if you qualify for state, local, utility, and federal incentives:

Tax Relief in Disaster Situations

The Internal Revenue Service (IRS) offers special tax help for individuals and businesses recovering from a major disaster or emergency. In a federally-declared disaster area, you can get a faster refund by filing an amended return. You will need to claim the disaster-related losses on your tax return for the previous year.

Get guidance from the IRS on amending a tax return or filing an extension after a disaster

Learn about tax relief for victims of  hurricanes 

Find more helpful tax tips and resources from the IRS for people affected by natural disasters. 

You can also contact the IRS for more information on tax relief in disaster situations. Wait times to speak with a representative may be long. 

Federal Tax Deductions for Charitable Donations

You may be able to claim a deduction on your federal taxes if you donated to a 501(c)3 organization. You must file a Schedule A with your tax form, to deduct donations. If you want to deduct a non-cash donation, you'll also have to fill out a form 8283.

The amount of money that you can deduct on your taxes may not be equal to the total amount of your donations.

  • If you donate non-cash items, you can claim the fair market value of the items on your taxes.
  • If you donated a vehicle, the amount of your deduction depends on if the organization uses the car or sells it at an auction.  “A Donor’s Guide to Vehicle Donation” explains how your deduction is determined.
  • If you received a gift or ticket to an event, you can only deduct the amount that exceeds the value of the gift or ticket. 

Recordkeeping

Keep records of your donations to charities. You may not have to send these documents with your tax returns, but they are good to keep with your other tax records. Common documents include:

  • Canceled check to the organization
  • Credit card statement showing a payment to the organization
  • Receipt from the organization
  • Annual giving statement from the charity or non-profit
  • Email confirmation from the organization
  • Written acknowledgment for vehicle donations
  • Itemized list of the items you donated
  • Vehicle identification number for vehicle donations
  • Signed over vehicle title
  • Phone bill, if you gave a donation through a text message
  • Valuations of stocks, real estate, art, or jewelry donated to a charity

Receipts and giving statements may include:

  • Name of the organization
  • Date of the donation
  • Amount of the donation
  • Statement that the charity did not exchange goods or services for your donation (if that was the case)
  • Vehicle identification number (VIN) for vehicle donations

Federal Tax Deductions for Small Business Charitable Donations

Small businesses and individuals generally have the same requirements when filing to receive a tax deduction for charitable giving. But, there are some important issues companies should know about. 

  • Donated services are not deductible. Out-of-pocket expenses related to the donation, like travel or materials, may be deductible. 
  • Donated non-food inventory must be reported according to specific requirements. These requirements are different than those for donated vehicles.
  • Donated food must be reported according to specific requirements.
  • Donated intellectual property must be reported according to specific requirements.
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Last Updated: March 13, 2019