Before you count on a tax break, find out whether it’s a deduction or a credit. A deduction lowers the income you’re taxed on, so it saves you only the amount times your tax bracket. A credit comes off your tax bill dollar for dollar. Check every credit you qualify for before you file.
In the 22% bracket, a $1,000 deduction cuts your federal tax by $220. A $1,000 credit cuts it by the full $1,000. Count the deduction like a credit and you’ve overvalued it by $780.
A deduction can also be worth nothing. Itemized deductions such as mortgage interest and property taxes help only if their total beats your standard deduction, and most filers take the standard deduction instead. Credits don’t depend on itemizing. A nonrefundable credit, the most common kind, can cut your tax only to zero. A refundable one can pay you even when you owe nothing.
So put a dollar value on a deduction before you spend money to get it. Multiply it by your tax bracket, and count an itemized one only if you’ll itemize. Some deductions, including health savings account contributions and student loan interest, lower your taxable income either way.
Credits are easy to miss. IRS figures show about one in five taxpayers who qualify for the Earned Income Tax Credit don’t receive it. Before you file, check that one, the Child Tax Credit, the Child and Dependent Care Credit, and the American Opportunity and Lifetime Learning credits for college costs.
One more lands in 2027. The Education Freedom Tax Credit gives you a dollar-for-dollar federal credit of up to $1,700 (Treasury rules pending) for a cash gift to a Scholarship Granting Organization that funds K-12 scholarships. You give first, the SGO awards scholarships on its own, and you claim it at filing, starting with the 2027 tax year. The AFC Scholarship Fund is taking interest registrations now.
If you skipped a credit you qualified for in a past year, file an amended return. You generally have three years from your original filing date to claim the refund.
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