Biggest Tax Write-offs for 2023 Explained

Who needs to file a tax return?

Most U.S. citizens or permanent residents who work in the United States need to file a tax return if they made more than a certain threshold of gross income that year, which depends on your filing status.

But here is a widely unknown tax secret: even if you made less than that “required to file” amount, you should still consider filing a tax return because you could get money back in a tax refund. The reasons for this include:

• You had federal income tax withheld from your pay.
• You made estimated tax payments.
• You qualify for a variety of tax credits, including the Earned Income Tax Credit.

There are a ton of benefits from filing a tax return. Not only is it the law and the right thing to do, but you can get a refund – meaning money in your pocket, and three out of four taxpayers get a refund each year. You’ll avoid interest and penalties if you’re required to file. Plus, fling a tax return also protects your credit, can make it easier to apply for different financial aid, and builds your Social Security benefits.

What do you include on a federal income tax return?

Tax returns are basically made up of three parts: income, credits, and deductions. Your tax return reports your total income, expenses, and other important information. Returns allow you to calculate your responsibility to the IRS and state, as well as the refund you might be owed. 

What is a tax write-off?

The final “part” of your tax return are deductions. Sometimes people also call them “write-offs.” Tax deductions, or write-offs, provide a benefit by allowing you to deduct a certain amount from your taxable income, depending on the type of deduction and amount, which means you pay less in taxes.

Deductions help you in two ways. You pay less taxes for each dollar you can deduct, and your deductions might land you in a lower tax bracket, so you pay a smaller percentage. You subtract the amount of the tax deduction from your income, making your taxable income lower. The lower your taxable income, the lower your tax bill.

At a high level, the IRS allows you to reduce your taxable income by using the standard or itemized deductions. But if you are self-employed, have rental property, or gain and loss transactions, there may be many other deductions for you to consider. Deductions really are a big deal. They can add up, and are not automatically on your tax return.

But for every taxpayer, regardless of other activity, you can either take the standard deduction or itemize. The amount for the standard deduction depends on your filing status. In addition to the standard deduction, there are other deductions you might qualify for on top of that, depending on your personal situation. Use the method (standard deduction vs. itemizing) that gives you the most tax benefits.

What are some of the biggest tax write-offs for 2023?

Tax write-offs and deductions are personal and unique for everyone – there’s not a blanket answer of what the most “popular” ones are, but some the most important categories you should know about that many people overlook are: 

1. Education Expenses
   There are several write-offs you can take advantage of if you’re a student, parent, guardian, or teacher. This year, after they were on pause, student loan payments came back. The good news? There’s a student loan deduction that lets you write off up to $2,500 from your taxable income if you paid interest on your student loans.
   
   If you’re a school teacher, you probably qualify for the Educator Expense Deduction. You can deduct up to $300 for things you won’t be reimbursed for from your employer, like books, supplies for the classroom, computer equipment and software, COVID protective items (hand sanitizer, face masks, and disinfectants), and more.
   
   Finally, if you are a student or have a student dependent, there are about 15 other benefits for higher education, including deductions and tax credits. It is important if you are a student (or have a dependent who is) to work with a Tax Pro.
2. Self-Employment Expenses
   Great news if you’re self-employed either full-time or part-time, even if you have a “regular” job in addition to working for yourself. You have the most tax deductions and write-offs available, compared to those who only work for traditional employers. Basically, anything related to operating your business can be considered a write-off. The expenses you pay as you do your work, or to do your work, or to make money can be deductible. This is a huge topic, so I’ll briefly touch on a few self-employment write-offs, including:
   • Home office deduction. The home office must be a separate room from the rest of the house and for business operations only, it can’t be a corner of the guest bedroom or use the kitchen table. That being said, if you’re self-employed, do not overlook the home office.
   • Self-employed mileage deduction. There are two options to deduct your miles driven for business. You can either claim standard mileage deduction (which is calculated by multiplying the total business miles you drove by a standard rate) or the actual car business expense deduction (which is the business portion of the total car expenses you incurred during the year and deduct it in total). Just know this. If you have a car for your side gig, you may have a huge tax break coming to you.
3. Health Savings Account (HSA)
   An HSA is a tax-exempt account used to pay or reimburse qualified medical expenses that generally would be eligible for the medical and dental expenses deduction. The amounts contributed to an HSA gain interest tax-free, and the account stays with you even if you change employers or leave the workforce. HSA are complicated, and the tax guidance is beyond this short video. Just know that if you have medical expenses in your future, talk to a Tax Pro about an HSA.
4. Charitable contributions
   For tax year 2023, only people who itemize and don’t take the standard deduction can have a charitable donation tax write-off. Charitable donations can be huge on your tax return. They include cash, property, mileage driven, and expenses for other things you do for charity. Also, if you are a taxpayer older than 70, it is really important you talk with a Tax Pro if you donate to charity, because there might be some really special tax breaks there for you.

What tax law changes are there for write-offs in 2023?

Every year, the IRS adjusts the standard deduction and other deductions to account for inflation. There aren’t many new write-offs or deductions this year from law changes, but there are some, including some new green credits and deductions. But even bigger than law changes are life changes. If you’ve experienced a big life change, it has more changes for your tax return than most tax law changes. For example, if you had or adopted a new child, got married or divorced, bought or sold a home, changed jobs, started a side hustle and working for yourself, retired, or even moved, you can see more write-offs.

How do I keep track of things that could be related to a tax deduction?

It’s so important to keep good records, and best practice is to keep records for seven years in the unlucky event that you’re audited by the IRS.

Track everything related to your tax return, job, and income. This Includes things like prior tax returns, receipts, canceled checks, health insurance documentation, and other documents that support any item of income as well as a deduction or credit.

At Jackson Hewitt, we recommend you organize all your tax-related documents into four categories: income items, deductions, life changes, and other. Organizing this way not only helps you get and stay prepared, but it also helps prompt your Tax Pro for when you might qualify for a new or different tax deduction or write-off.

If you don’t keep good records, especially when it comes to items you want to take a deduction on, and the IRS or state asks about it, you could run into issues. Your tax return could take longer to process, it could take longer to get your tax refund, or the IRS might even consider taking further action. It’s best to talk to your Tax Pro to figure out how to best document what you’re taking a deduction on, or risk issues, penalties, or interest.

What is considered taxable income?

The income section of a tax return includes all of your wages you earned for the calendar year. This is any money you earned from your employers, which will generally come as a statement on a W-2 form. It also includes any money you earned as a self-employed taxpayer, which is generally shown on 1099 and 1099-NEC forms.

But income also includes things like:

• Unemployment compensation and benefits
• Tips
• Self-employment income
• Interest and dividends
• Retirement income
• Social Security benefits
• Investment income
• Capital gains
• And more

What isn’t considered taxable income?

Be careful not to include things as income that aren’t taxed, because the IRS will not automatically fix it for you. There are many things that aren’t considered taxable income – like child support, workers compensation, welfare payments, and inheritances or gifts—and you shouldn’t include these things on your return. If you do, you’ll pay tax on it when you don’t have to.

What are tax credits?

Tax credits are part of your refund. Credits can make your tax refund bigger in two ways.

Frist, tax credits give you a dollar-for-dollar reduction in the amount of tax you owe, and can increase your refund.

Second, in some cases, you could get part of your tax credit added to your tax refund, so you get more back.

There are dozens of tax credits that you likely qualify for, but some of the most common tax deductions this year are:

• Earned Income Tax Credit
• Child Tax Credit
• Child and Dependent Care Credit
• Lifetime Learning Credit
• Saver’s Credit
• And more

Don’t make assumptions or guess what you might be able to write off on your income tax return, find an office near you and work with a Tax Pro today.

About the Author

Mark Steber is Senior Vice President and Chief Tax Information Officer for Jackson Hewitt. With over 30 years of experience, he oversees tax service delivery, quality assurance and tax law adherence. Mark is Jackson Hewitt’s national spokesperson and liaison to the Internal Revenue Service and other government authorities. He is a Certified Public Accountant (CPA), holds registrations in Alabama and Georgia, and is an expert on consumer income taxes including electronic tax and tax data protection.

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