These Forgotten Tax Credits Could Save You More Than You Think

The Internal Revenue Service (IRS) reports that more than 9 million taxpayers failed to claim various tax benefits during the 2022 tax filing season. Those people admittedly missed out because they hadn’t filed tax returns. However, the IRS also noted that many taxpayers who did file overlooked one or more tax credits they qualified for.

Key Takeaways

• You can claim tax credits for improving your primary home’s energy.
• Your dependents don’t have to be your children for some tax credits. They can be adults.
• The IRS is willing to reward you a little when you save for retirement.

There are a variety of reasons why tax credits go unclaimed. Some may not know these credits exist, while others may feel intimidated by the qualifying rules or recent tax law changes. Some taxpayers might assume they don’t qualify for certain credits at all. But these credits may still be available when you prepare your return.

Residential Energy Credits

Many taxpayers overlook several residential energy credits. According to Michael Merlino, president and CEO at Atlantic Accounting Associates in Egg Harbor Township, NJ, these include “Solar, wind, geothermal, fuel cell, and building components such as exterior doors, windows, skylights, and insulation.”

The Inflation Adjustment Act expanded two energy tax credits in 2022: the Energy Efficient Home Improvement Credit and the Residential Clean Energy Credit. You must claim them in the year you had the work done. You can’t carry them over, and you must use the improved home as your residence.

The Energy Efficient Home Improvement Credit is 30% of what you spend up to a cap of $1,200 annually through tax year 2032. Some major improvements, like biomass boilers and stoves, are subject to a higher limit of $2,000. The Residential Clean Energy Credit is also 30% through 2032, but there is no annual or lifetime limit.

Child and Dependent Care Credit

The Child and Dependent Care Credit is available for taxpayers who need to pay for childcare so they can work or look for work. This credit applies if your spouse is unavailable to provide care due to their own employment.

Many taxpayers think this credit is restricted to paying for care for your child or children, but that’s not the case. You can claim it if you must pay for care for an older dependent because they’re unable to care for themselves while you’re away from home.

The child and dependent care credit can be as much as 35% of your expenses, depending on your adjusted gross income (AGI). It drops to 20% if your AGI is more than $43,000 as of tax year 2024.

Tax Credit for Other Dependents

Most taxpayers are familiar with the Child Tax Credit, but did you know there’s a similar credit for other dependents? The Tax Credit for Other Dependents offers a $500 credit for dependents who do not qualify for the Child Tax Credit. There are no age restrictions for your dependent, unlike the Child Tax Credit, which requires your child to be younger than 17.

It covers qualifying relatives supported by you and dependents who aren’t related to you provided that they live with you. They must have a Social Security or Individual Taxpayer Identification Number and be a U.S. citizen, national, or resident alien. You can’t claim both the Child Tax Credit and the Tax Credit for Other Dependents for the same dependent.

The rules for this one can be a little complex, so the IRS provides an online tool to determine whether you and your dependent qualify. It takes about 10 minutes to complete.

The Saver’s Credit

The Retirement Savings Contribution Credit is commonly referred to as the “Saver’s Credit.” It’s equal to 10%, 20%, or 50% of the contributions you make to various retirement plans during the tax year. These plans include traditional and Roth IRAs, 401(k)s, and several others such as governmental plans, too.

You must be at age 18 to claim this credit, and it can’t be claimed as dependent on anyone else’s tax return. You also can’t be a student.

These percentages are based on your AGI as well. The income thresholds vary depending on your filing status such as whether you’re single, married, or filing as head of household. A single filer can’t claim this credit if their 2024 AGI is more than $38,250. Married taxpayers who file jointly are limited to AGIs of $76,500.

Tax Credits vs. Deductions

There are tax credits and then there are tax deductions. Many people confuse the two. Tax credits are generally better than deductions because they subtract directly from what you owe the IRS. Deductions subtract from your income to determine how much of it is subject to tax.

Important

Claiming tax deductions can put you in a lower tax bracket and that’s an advantage that can’t be overlooked. A disadvantage is that you can’t claim various deductions and take the standard deduction for your filing status, too. It’s an either/or decision.

Merlino notes some commonly overlooked tax deductions that can reduce your taxable income. “1) interest on money you borrow to buy an investment, 2) casualty and theft losses on income-producing properties, and 3) points paid when buying real estate.”

Points are those discount points you pay to reduce your mortgage interest rate when you purchase and finance a home. It has to be your principal residence and act as collateral for the mortgage.

You can also deduct state and local taxes you paid up to a limit and gambling losses. And yes, your gambling winnings are taxable.

Potential Changes in Tax Deductions

Some deductions were eliminated from the tax code in 2017, at least temporarily.

“After President Trump’s Tax Cuts and Jobs Act, many deductions that previously fell under ‘miscellaneous itemized deductions’ are now gone,” says Merlino. However, President Trump has indicated that he intends to extend portions of the Tax Cuts and Jobs Act in his second term when the act expires at the end of 2025.

The Bottom Line

Tax provisions including credits and deductions are a shifting landscape. Qualifying income levels for tax credits and how much the credits are are adjusted annually to keep pace with inflation. Legislation can play a big part as well.

These rules and limits are effective for the 2024 tax year for which you’ll file a return in 2025. Be alert for announcements regarding changes for 2026. The IRS usually makes them in mid-autumn.