No one wants to overpay their federal taxes. There are 2 types of tax breaks that help determine what you really owe: tax deductions and tax credits.
What is a tax credit?
A tax credit is an amount that can be subtracted directly from your tax bill or, in some cases, added to your tax refund. For example, if you have a $1,000 bill and claim a $250 credit, you owe $750.
What is a tax deduction?
A tax deduction reduces your taxable income. If you claim a $1,000 deduction, it means you don't pay tax on that $1,000. Unlike tax credits, which you can claim no matter how you file your taxes, each year you have to decide whether to itemize your tax deductions on Form 1040 Schedule A or take what's called the standard deduction, a set dollar amount that is subtracted from your gross income.
If a filer can claim deductions—like the ones listed in this article—that add up to more than their standard deduction, they may choose to itemize.
Whether you itemize or not, here are 13 tax breaks that could potentially decrease your final tax bill or increase your refund:
1. Kids and dependents credits
If you're financially responsible for a child, relative, or other person, these dependents could help reduce your tax bill or even raise your refund amount.
The Child Tax Credit and Credit for Other Dependents allow you to claim tax credits for each of your qualifying dependents. If your modified adjusted gross income (MAGI)—your gross income with certain adjustments—is under $400,000 if filing jointly or $200,000 with any other filing status for 2025, this could mean $2,200 per child under 17 (at the end of 2025) or $500 per other dependent. If your MAGI is over those amounts, you might qualify for a partial credit. Up to $1,700 of the child tax credit may be refundable.
The Child and Dependent Care Credit covers childcare expenses, or the care of a spouse or parent who isn't mentally or physically able to care for themselves, while you work or look for work. For 2025, the Child and Dependent Care Credit applies to 20% to 35% of up to $3,000 for care-related expenses for one qualifying dependent, and up to $6,000 for 2 or more.
If you've adopted a child and incurred adoption costs, the Adoption Credit can get you up to $17,280 back on your taxes if you're within income limits, up to $5,000 of which is refundable—a new allowance for 2025. The non-refundable portion of the credit can be carried forward for a maximum of 5 years. Expenses reimbursed by your employer aren't eligible. However, you may not have to include the reimbursement from your employer in your income up to the credit amount.
2. Retirement savings deductions and credits
Any pre-tax contributions you make to a workplace retirement account, such as a 401(k) or 403(b), may decrease your taxable income. If you contribute to a traditional IRA and make less than the IRA income limit, you may be able to deduct some or all of those contributions at tax time, depending on your filing status and, if you're filing jointly, whether you or your spouse is covered by a retirement plan at work.
Don't forget: There are annual limits to how much you can contribute to a workplace retirement plan and an IRA. But, unlike workplace retirement plans, you have until the tax filing deadline to make last-minute IRA contributions that could reduce your previous year's taxable income. Mark your calendars for this year's deadline: April 15, 2026.
There's also the Saver's Credit, a tax credit worth up to 50% of your contribution to a workplace retirement plan or IRA. Through this credit, you could receive up to a max of $2,000 if you're married filing jointly or $1,000 for all others. Some requirements: being 18 or older, not being a student, and not being claimed as someone else's dependent.
3. Health care savings deductions
Saving for qualified medical expenses in a health savings account (HSA) or a flexible spending account (FSA) could help reduce your gross taxable income. If the account is through your employer benefits, you may make pre-tax contributions directly from your paycheck. If you open the account yourself because you have an HSA-eligible health plan, your contributions are tax-deductible at the federal level even if you don't itemize. HSAs have annual contribution limits and you're allowed to add to them up until Tax Day.
4. Higher education deductions and credits
Student loan interest, interest you paid during the year on a qualified student loan, is a deduction. It includes both required and voluntarily prepaid interest payments. You may deduct the lesser of $2,500 or the amount of interest you actually paid during the year. For 2025, the amount of your student loan interest deduction is gradually reduced (phased out) if your MAGI is between $85,000 and $100,000 (or between $170,000 and $200,000, if you file a joint return). You can't claim the deduction if your MAGI is $100,000 or more ($200,000 or more if you file a joint return).
You may also qualify for 2 education-related tax credits, though both have income limits. If you're in your first 4 years of higher ed, attending at least part-time, and pursuing a degree or other qualified credential, the American Opportunity Tax Credit could shave up to $2,500 off your tax bill. The Lifetime Learning Credit allows you to claim up to $2,000 on qualified tuition and education-related expenses paid toward undergraduate, graduate, and professional degree courses during the tax year. You can't take both credits for the same student or the same expenses in the same tax year.
If you're saving for higher education costs in a 529 college savings plan, those contributions are not federally tax-deductible. However, you may be able to deduct them from your state taxes, depending on your plan and where you live. Compare 529 plans by state.
5. Energy efficiency credits
You could claim 2 different tax credits for energy-efficient home upgrades. The Energy Efficient Home Improvement Credit could give you back up to $1,200 for energy-saving improvements, such as updates to heating, cooling, or added insulation, plus up to $2,000 for qualified heat pumps, biomass stoves, or biomass boilers. If you installed an energy-producing system, such as solar panels, windmills, or geothermal heat pumps, you might be able to claim up to 30% of that investment back through the Residential Clean Energy Credit. Neither credit will be allowed for expenditures made after December 31, 2025.
Did you make the leap to a new electric vehicle on or before September 30, 2025? Depending on your income and the type, cost, and manufacturer of the vehicle, you might be eligible for up to $7,500 off your tax bill through a clean vehicle tax credit. Used electric vehicles acquired on or before September 30, 2025 are now eligible for a tax credit too: If you purchased a used EV or fuel cell vehicle from a licensed dealer for $25,000 or less, you're not claimed as a dependent on someone else's tax return, and you're within the income limits, you may be eligible for a credit equal to 30% of the sale price, up to $4,000.
Buyers can claim these credits at tax time, but qualified buyers can opt to transfer the credit directly to dealerships as a down payment at the time of purchase. This is allowed regardless of a buyer's tax liability.
6. Income and work credits
Naturally, your earnings play a big part in your tax bill size. If you're under the income limits, you may be able to take the Earned Income Tax Credit. Intended for low to moderate earners, this credit could help you claim anywhere between a few hundred to a few thousand dollars, depending on whether you have kids and if you're filing alone or jointly with a spouse. Other sources of income, such as investment income, may impact your eligibility too.
Unless you own a business, your work expenses might not be tax-deductible. But there are some exceptions. If you're an educator who spends money on classroom supplies and other necessary expenses, you may be able to deduct up to $300 in 2025. Check if you're eligible—and keep those receipts.
Self-employed? That's a different ballgame. Here are 6 must-know tax tips for the self-employed, or you can visit the IRS Gig Economy Tax Center to explore your options.
Effective 2025 through 2028, some taxpayers may be able to deduct up to $25,000 from qualified tip income, including voluntary cash or charged individual or shared tips, though restrictions apply. To receive the maximum deduction, MAGI must be under the limits for your tax-filing status ($150,000 for single and $300,000 for married couples filing jointly). Eligible occupations are listed on the IRS website.
Related: No Tax on Tips: A new deduction explained
Certain single-filing taxpayers may also be able to deduct up to $12,500 in overtime pay from their federal tax return. (Eligible joint filers may deduct up to $25,000.) Like No Tax on Tips, the No Tax on Overtime deduction is effective for tax years 2025 through 2028 and phases out for single-filing taxpayers with a MAGI over $150,000 and, for joint filers, over $300,000.
Related: What is “No Tax on Overtime”?
7. Car loan interest deduction
Also effective from 2025 to 2028, taxpayers may deduct up to $10,000 in interest paid on a loan used to buy a qualified vehicle for personal use. (Other eligibility criteria apply.) Lease payments aren't eligible. The deduction phases out for most filing statuses for taxpayers with a MAGI over $100,000. The phase-out starts at a MAGI of $200,000 for joint filers.
8. Deduction for seniors
Individuals age 65 and older may claim an additional $6,000 deduction ($12,000 for married couples if both spouses qualify) whether you itemize or take the standard deduction. In 2025, if you’re taking standard deduction, the base amount is $15,750 + $2,000 (for single or head of household if not blind; it’s + $4,000 for a blind senior) or $31,500 + $1,600 (for each qualifying spouse if married filing jointly or filing as a qualifying surviving spouse; it’s + $3,200 for each spouse who is both blind and 65 or older). The deduction, effective for tax years 2025 through 2028, phases out for taxpayers with MAGI over $75,000 ($150,000 for joint filers).
9. Property and investment loss deductions
Tax season can help you balance what you've gained with what you've lost. If your home, car, or other belongings were damaged in a federally declared disaster, such as a hurricane or tornado, you may be able to deduct what insurance didn't cover. (You could be eligible for other financial help too.)
As for investing, you pay taxes on realized investment gains—that is, any securities you've sold for a profit. If you've also sold investments during the year at a loss, you may deduct those losses from your capital gains, reducing the amount you'll be taxed on. If you lost more than you gained in a year, you may deduct up to $3,000 ($1,500 if you're married filing separately) from your ordinary income too. Lost more? You could carry over the rest to use in future years.
If you itemize:
10. Charitable donation deductions
Monetary donations to qualified nonprofit organizations can be tax-deductible, depending on your income. The same goes for non-cash gifts. So that bag of clothes or purged toys both count. Other donations could include home goods, books, old cars, even stocks and bonds, but income limits might differ when you donate assets instead of cash.
Read the IRS guidelines carefully or consult a tax professional before deducting donated items. The IRS might think they're worth less than you do. Deductible clothes and home goods, for example, must typically be in good used condition or better. If any donated item in this category is not in at least good used condition and you've deducted more than $500 for it—then you’d need a qualified appraisal and Form 8283.1 Keep records of all donated items and their values.
Starting in tax year 2026 (the taxes you’ll file by April 2027), even those taking the standard deduction can deduct certain charitable contributions, up to $1,000 for individual filers and $2,000 for joint filers.
Also effective for the 2026 tax year, itemizers who make charitable contributions will only be able to claim a tax deduction for qualified contributions that exceed 0.5% of their adjusted gross income (AGI). Finally, the tax benefits of itemized deductions are capped at 35% for those in the 37% marginal tax bracket.
11. Uncovered medical and dental expense deductions
Uncovered or non-reimbursed medical expenses, especially surprise ones, can be painful. If these add up to more than 7.5% of your adjusted gross income, you may be able to deduct them on your taxes. This is true for your spouse's and dependents' health care services too, including doctor or dentist fees, hospital care, prescriptions, and even addiction treatment. Check out this list of qualified expenses.
If you have a disability, or your spouse or a dependent does, associated costs, such as accessibility home improvements or dedicated care, could also be deductible. For those out of work due to a permanent disability, you may also be eligible for the Credit for the Elderly or the Disabled.
12. Home, city, and state deductions
If you own your home (or a second home) and have a mortgage, you may be able to deduct the interest you paid throughout the year, plus other charges such as prepayment fees or even some late payment fees. Whether your home is a house, condo, apartment, barndominium, or beyond, your purchase year and mortgage amount affect how much you can deduct.
Depending on where you live, you may be paying local or state taxes. If you itemize, you're allowed to deduct a combination of your property taxes and either your state and local income taxes or your state and local sales taxes, up to $40,000 (or $20,000 for those married filing separately [MFS]). However, the limits start to phase down above the MAGI of $500,000 (or $250,000 for MFS), with a hard floor of $10,000 ($5,000 for MFS).
Related: How the new SALT deduction cap could affect your taxes
13. Gambling-loss deduction
You win some, you lose some, you pay some, you deduct some. Yes, you're on the hook for taxes on gambling winnings, but if the slots, cards, or lotteries weren't in your favor at other times, you can deduct losses up to the amount that you won from gambling. No wins? Unfortunately, you won't be able to deduct your losses, but at least you'll have no extra taxable income. You'll just need to be that person in the casino asking for receipts.