Tax Season Tips: Maximizing Deductions and Credits for Investors

As tax season progresses, many investors look for strategies to reduce their tax liability and maximize their returns. The IRS provides a variety of deductions and credits that can help lower taxable income or directly reduce the amount of tax owed. Below is a guide to understanding and utilizing these opportunities based on verified IRS resources.

Understanding Tax Deductions and Credits

• Tax Deductions: These reduce your taxable income, which can lower the tax owed. For example, contributing to retirement accounts like IRAs or Health Savings Accounts (HSAs) can qualify as deductions—source: IRS Publication 590-A.
• Tax Credits: Credits directly reduce the tax you owe on a dollar-for-dollar basis. Some credits, like the Earned Income Tax Credit (EITC), are refundable, meaning they can result in a refund even if you owe no tax—source: IRS Tax Tips.

Key Deductions for Investors

1. Retirement Contributions
2. If eligibility requirements are met, contributions to Traditional IRAs, 401(k)s, or SEP IRAs can be deducted from taxable income. For 2024, the contribution limit for Traditional IRAs is $7,000 ($8,000 for those aged 50 or older)—source: IRS Publication 590-A.
3. Investment Interest Expense
4. If you borrow money to invest, the interest paid on the loan may be deductible up to the amount of net investment income. This deduction is available only if you itemize deductions. The source is TurboTax.
5. Capital Losses
6. Investors can deduct up to $3,000 in capital losses ($1,500 if married filing separately) against other income. Losses beyond this limit can be carried forward to future years—source: IRS Publication 550.
7. Home Office Deduction
8. If you manage your investments from a dedicated home office, you may qualify for this deduction, provided specific criteria are met. This is particularly relevant for self-employed individuals or those running investment businesses—source: IRS Tax Tips.

Key Credits for Investors

1. Energy-Efficient Home Improvement Credit
2. Under the Inflation Reduction Act of 2022, investors who make qualifying energy-efficient upgrades to their homes may claim credits for expenses related to insulation, windows, doors, and other improvements—source: IRS Energy Credits Guide.
3. Clean Vehicle Credit
4. Suppose you purchased a qualifying electric or hybrid vehicle in 2024. In that case, you might be eligible for a credit of up to $7,500 under the Inflation Reduction Act provisions—source: IRS Clean Vehicle Credit Guidelines.
5. Saver's Credit
6. Low- and moderate-income taxpayers contributing to retirement accounts may qualify for this credit of up to $2,000 ($4,000 if married filing jointly)—source: IRS Tax Tips.

Standard vs. Itemized Deductions

Most taxpayers take the standard deduction because it simplifies filing and often provides more significant savings unless itemized deductions exceed the standard amount:

• For 2024:

• Single filers: $14,600

• Married filing jointly: $29,200

• Head of household: $21,900

• Source: IRS Standard Deduction Guidelines.

If your deductible expenses (e.g., mortgage interest, and medical expenses exceeding 7.5% of AGI) exceed these amounts, itemizing may save you more money.

Tips for Maximizing Tax Benefits

1. Track Expenses Year-Round
2. Maintain organized records of deductible expenses like charitable donations or investment-related costs to ensure nothing is overlooked during filing.
3. Use Tax Software or Professionals
4. Tax preparation software can help identify deductions and credits automatically based on your financial data. Alternatively, consult a qualified tax professional for personalized advice.
5. Plan Ahead
6. Consider "bunching" deductions into one year by strategically timing charitable contributions or medical expenses to exceed the standard deduction threshold.

Disclosure

This article is intended for informational purposes and does not constitute financial or legal advice. Readers should consult a qualified professional regarding tax strategies and applicable regulations. The information provided herein is based on publicly available sources deemed reliable as of the publication date; however, accuracy and completeness are not guaranteed.

Referenced sources are cited as educational resources but do not endorse this article. All investments carry risks, including potential loss of principal. This material is not intended to serve as personalized tax advice since the availability and effectiveness of any strategy depend upon individual facts and circumstances. Please consult your legal or tax professional regarding your specific situation when determining if any strategies are right for you.

This material is not intended to serve as personalized tax, legal, or investment advice, as the availability and effectiveness of any strategy depend on your individual facts and circumstances. Duncan Williams Asset Management is not a legal or accounting firm. Please consult with your legal or tax professional regarding your specific tax situation to determine if any of the mentioned strategies are suitable for you.  

Sources

1. IRS Tax Tips - https://www.irs.gov/tax-tips
2. IRS Publication 590-A - https://www.irs.gov/pub/irs-pdf/p590a.pdf
3. TurboTax Guide on Itemized Deductions - https://turbotax.intuit.com/tax-tips/tax-deductions-and-credits

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