Prativa Hartnett

Nobody likes tax season, except the CPAs (and even that's debatable.)  Becoming aware of tax credits, deductions, and exemptions can ease the burden and make you feel good on Tax Day.

To become fully versed on breaks this tax season, let’s briefly break down what the difference is between tax credits, deductions, and exemptions:

Deductions, exemptions, and credits all reduce your tax bill, but deductions and exemptions specifically reduce your overall bill.  For example, they will all cut your taxes by a percentage and reduce your income subject to tax.  Tax credits, however will cut your tax by a dollar amount, instead of a percentage, to reduce tax burden.  There are many tax credit options available, and some differ by state, but below are some general tax breaks that can go unnoticed.


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1) Tuition and Fees Deductions

Amidst the long sleepless hours of studying, cramming for midterms, and scrounging up enough money to buy a venti Starbucks drink, there's a benefit that tuition-paying college students shouldn’t overlook.  According to the IRS, the tuition and fees deduction can reduce the amount of your income subject to tax by up to $4,000.  Payments of education through grants, scholarships, and even loans are applicable for deduction.  Being a full-time student is also not necessary, and you can potentially deduct for work-related education—for example, if you’re working and going to school for a potential promotion.  There are other options for student loan payers, such as the ability to deduct up to $2,500 of the interest you paid on a qualified student loan.

2) Home Office Deductions

For those of you who are fortunate enough to work from home full-time, working from home just got a little more appealing—not that working in your pajamas wasn’t already appealing.  The IRS lists a 'Business Use of Your Home' section, which offers deductions on direct and indirect costs that ensue while working.  For example, deducting a percentage of services, and repairs that are only related to the business part of your home may be applicable for direct costs.  Applicable indirect costs include utilities, real estate taxes, casualty losses from damage, or rent using a percentage of use bases, because they are related to your entire home.

3) Energy Tax Credits

Generally speaking, tax credits are used to influence behavior.  For example, you can be rewarded if you make changes towards energy efficiency.  There are tax credits available for up to $7,500 if you have purchased an energy-efficient car in or after 2010, with newer cars being worth more credit.  If you have upgraded to a more green option in your home, Residential Energy Efficient Property Credit may apply.  Qualified equipment includes solar hot water heaters, solar electric equipment, and wind turbines. The decision to help the environment has a tax incentive—an opportunity you shouldn’t waste.

4) Saver’s Credits

Apparently, saving money can earn you money in more than one way.  If you have added money into a 401K, IRA, or other retirement fund, you may be able to claim that amount, 50%, 20% or 10% of your retirement plan or IRA contributions up to $2,000 for individuals and $4,000 for married couples filing jointly.  The maximum credit you may receive is $1,000 and $2,000, respectively.  The income that you put into the savings accounts can be turned into tax credits depending on specific criteria, including your adjusted gross income.  This credit is meant as an incentive for mid- to low-income individuals and families to save money.  There are some caveats, though: you must be over the age of 18 and neither a full-time student nor listed as a dependent.


Becoming aware of tax credits, deductions, and exemptions can ease the burden and make you feel good on Tax Day.


5) Health Care Exemptions

The Affordable Care Act requires all individuals to be insured; however, sometimes circumstances for getting insurance are not ideal.  The fees for being uninsured in 2016 have steadily risen from those of the previous years.  Now, the tax rate is either 2.5% of your income, or a flat rate of $675 for adults and half for children—up to $2,085!  Whether or not you like the Affordable Care Act, you will be taxed for not having ‘minimal essential coverage.’  Fortunately, there some are exemptions to this law.  The most common situation may be being in between jobs; if you lack of insurance coverage for three months or less, you should look into filing for an exemption.  If the least expensive health insurance available to you costs more than 8.13% of your 2016 income in premiums, you are exempt as well.  Moreover, there are religious exemptions if your religion objects to insurance, and there are hardship exemptions if you have been homeless, have experienced domestic violence, or have faced eviction (to name a few.)


Resources from the IRS Website and can help you navigate the right decisions for your situation.  As Americans, it's our duty to pay taxes to readily have services available; however, it's also our duty to be smart about paying taxes and take advantage of the breaks offered. 

And remember, please deduct responsibly!


Prativa Hartnett is an aspiring creative writer, painter, and psychonaut living deep in the heart of Texas.


Comments (1)

  1. Meagan Hooper

Such helpful tips!


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