Tax Season 2025: What You Need to Know

Tax Deductions and Credits to Consider This Tax Season

The closest things to magic words when it comes to taxes are deductions and credits. Both help you keep more money in your pocket instead of Uncle Sam’s, but in slightly different ways.

• Tax deductions help lower the amount of your income that can actually be taxed. Some deductions are only available if you itemize, while others are still available even if you decide to take the standard deduction.

• Tax credits, on the other hand, are dollar amounts actually subtracted from your tax bill, and there are two types: refundable and nonrefundable. If a credit is greater than the amount you owe and it’s a refundable credit, the difference is paid to you as a refund. Score! If it’s a nonrefundable credit, your tax bill will be reduced to zero, but you won’t get a refund. Still a win!

Here are some potential deductions and credits you might be able to claim on your tax return this year. But while it’s never too early to start planning for taxes, the IRS doesn’t always follow our schedule. So keep in mind that the details below could change as tax season approaches.

1. Charitable Deductions

You can deduct charitable contributions you made during tax year 2024 as long as you itemize your deductions and donate to qualified organizations. The limit for charitable deductions is 60% of your adjusted gross income (AGI).⁶ (By the way, AGI is your total income minus other deductions you’ve already taken.)

2. Medical Deductions

If you found yourself with hefty medical bills in tax year 2024, you might be able to find at least some tax relief.

You can deduct any medical expenses above 7.5% of your adjusted gross income (AGI).⁷ For example, if your AGI was $100,000, you can deduct out-of-pocket medical expenses above $7,500 in tax year 2024. But you have to itemize your deductions in order to write off those expenses on your tax return.

3. Business Deductions

If you’re self-employed, there are a bunch of deductions you can claim on your tax return—including travel expenses and the home office deduction if you use part of your home for business purposes.⁸

But if you’re one of the millions of people who work remotely, you won’t be able to claim the home office deduction since it’s reserved for self-employed people only. Sorry!

4. Retirement Account Deductions

If you’re an employee who contributed to a traditional 401(k) throughout the year, you don’t need claim those contributions as tax deductible when you fill out your tax return. That’s because the money was taken out of your paycheck before federal taxes on your income are figured. That’s one less thing you have worry about!

For traditional IRA contributions, you can take a full deduction up to the limit ($6,500 for most folks and $7,500 if you’re 50 or older) if neither you nor your spouse participate in an employer-sponsored plan like a 401(k). Cha-ching! 

If you do contribute to an employer-sponsored plan, the deduction phases out as your income increases depending on your filing status:⁹

• Single: You get a full deduction if your income is less than $77,000. You can take a partial deduction if your income is between $77,000 and $87,000. If you make more than $87,000, you don’t get any deduction.
• Married filing jointly: You get a full deduction if you make less than $123,000. If your income is between $123,000 and $143,000, the deduction is only partial. Couples making more than $143,000 get no deduction.
• Married filing separately: You get a partial deduction if you make less than $10,000. There’s no deduction if you make more than $10,000.

If you’re not covered by an employer-sponsored plan at work but your spouse is, you’ll need to file jointly to get the deduction. You can take a full deduction if you make less than $230,000, a partial deduction if you make between $230,000 and $240,000, and no deduction if you make more than $240,000.¹⁰

What if you’re the proud owner of a Roth IRA or Roth 401(k)? The bad news is, your contributions to Roth accounts are not tax-deductible. But the good news (and it’s very good news) is that you won’t have to pay taxes when you take the money out of your account in retirement. (That’s why we recommend investing with Roth IRAs and Roth 401(k)s whenever possible.)

Need help navigating retirement plans? It’s probably a good idea to reach out to an investment professional who can walk you through the process.

5. Earned Income Tax Credit (EITC)

This one’s a biggie. The EITC is a refundable credit designed to help out low- and middle-income households.¹¹ To qualify for the credit, a single filer with no children must have an AGI below $18,591, while the cap for a married couple with three or more children is $66,819.¹²

Maximum Adjusted Gross Income Limits

And here’s the maximum EITC credit amounts you can get based on your number of qualifying children:

Maximum EITC Credit Amounts

You cannot claim the EITC if you have investment income over $11,600 or if you’re married filing separately.¹⁵

Depending on your income, your filing status and number of dependents, the credit could save you anywhere from a few hundred to a few thousand dollars on your taxes.

6. Child Tax Credit (CTC)

Got kids? Well, here’s a tax credit just for you! The child tax credit lets you credit up to $2,000 per dependent child under the age of 17. The income limit is $400,000 for married filing jointly and $200,000 for all the other filing statuses^.17 The CTC is also partially refundable up to $1,700.¹⁸

7. Child and Dependent Care Credit

This is another great credit parents and guardians should know about. The child and dependent care credit is a nonrefundable credit that allows taxpayers to offset some of the costs for care provided while you’re working, things like child care facilities and in-home caregivers for older dependents.

Here’s how it works: You can claim 20–35% of up to $3,000 ($6,000 for two or more dependents) for the cost of care. The percentage of the credit depends on your AGI. Families with an AGI of $15,000 or less can claim the full 35%. As you earn more income, the credit is reduced. But a family with an AGI of over $43,000 can still claim the minimum credit rate of 20%.¹⁹

Let’s break it down. You pay $250 a week for Junior to go to day care. That’s about $13,000 a year (ouch). If you qualify to credit 20% of $3,000 in care costs, you get $600 knocked off your tax bill. Not too shabby!

8. Education Credits

Bettering yourself or your children through education is a good thing, and it’s even better when you get a tax break.

The American opportunity tax credit (AOTC) is a partially refundable credit that pays for education expenses for students during their first four years of college. You can claim up to $2,500 per student—and if the credit brings your tax bill to zero, you could receive up to $1,000 (that’s 40% of the credit) as a refund.²⁰

Another education credit is the lifetime learning credit (LLC). This one isn’t refundable, but it covers up to $2,000 in qualified educational expenses per return.²¹ While you can only take advantage of the AOTC for undergrad expenses, you can reap the benefits of the LLC for expenses related to all kinds of educational opportunities—from degree programs to technical classes to courses for improving job skills.

But beware: You can claim both the AOTC and the LLC on your tax return—but not for the same student or the same expenses.²² And both credits have income limits: You cannot claim either credit if your modified adjusted gross income (MAGI) is more than $90,000 ($180,000 for those who are married filing jointly).²³

In addition to these credits, you could be eligible for a tax deduction (up to $2,500) for interest you’ve paid on student loans. Now, the student loan interest deduction is definitely not a reason to keep student loans around if you currently have them since the deduction is basically a small refund of what you’ve already paid—it’s not free money.

So you should still pay off your student loans as soon as possible. But if you do still have student loans and you’re working hard to pay them off, this deduction could be a nice bonus.

9. Inflation Reduction Act Credits

The Inflation Reduction Act, a bill that President Joe Biden signed into law in 2022, includes several tax credits launched last tax season. While most of them only apply to big businesses (and we’re talking really big—those with over $1 billion in revenue), there are two potential credits for individuals.

First, the Inflation Reduction Act offers a credit (up to $7,500) to certain people who’ve recently purchased a new or used electric vehicle.^24,25 It also offers a credit for folks who’ve made energy improvements to their homes—things like adding solar-powered generators and water heaters.²⁶

Just remember, a tax credit or deduction is never a reason to go out and make a purchase. But if you were already planning (and budgeting) to buy an electric vehicle or make energy improvements to your home, you could be eligible for a nice bonus when you file your taxes.

1099-K Changes Incoming

If you frequently sell goods or services online as a side hustle, get ready. There are some changes coming your way thanks to new rules surrounding 1099-K forms that will be implemented starting this tax season.

For tax years 2023 and earlier, you only had to report a 1099-K form if you had more than 200 third-party business transactions a year and they added up to more than $20,000 of income. But the IRS is planning to make things a lot different in the 1099-K department starting this tax season.

As of tax year 2024, you’ll get a 1099-K form if you receive $5,000 or more in payments for goods or services using third-party payment processors (think Venmo, PayPal, Stripe, Square, Zelle and Cash App). This is part of the IRS’s plan to gradually implement the $600 reporting threshold that was part of the American Rescue Plan (ARP).²⁷

File Your Taxes With Confidence in 2025

Win with taxes (and avoid costly mistakes) when you do your taxes the Ramsey way. Ramsey SmartTax is the no-nonsense tax software you can trust. It’s simple to use with no hidden fees and no hidden agenda. It’ll even teach you along the way so you’ll feel empowered to do your own taxes with confidence.

And unlike the folks at the IRS, our product specialists will answer your calls and serve you with excellence if you need any help along the way. You definitely won’t get that with IRS Free File!

File your taxes with Ramsey SmartTax!

But what if you have a more complicated tax situation or had a wild year in 2024? In that case, working with a tax pro is a smart move. And if you’re looking for a trustworthy tax professional who serves your area, try one of our RamseyTrusted® tax pros. They know the tax code inside and out so you don’t have to.

Find a tax pro who serves your area today.