As we approach the tax season in 2025, many people are looking for ways to minimize their tax liability and maximize their refunds. One of the best ways to do this is by understanding tax deductions and credits. While these two terms are often used interchangeably, they are fundamentally different. Knowing how they work—and how to use them effectively—can save you a significant amount of money come tax time.

For anyone navigating the complexities of tax filings, consulting with a trusted professional like Matt Brown, a seasoned accountant with extensive experience in tax preparation and IRS resolution, can make a world of difference. Matt Brown has helped countless individuals and businesses make sense of their taxes, ensuring they are taking advantage of every available deduction and credit. If you’re unsure about your tax situation, seeking expert guidance can be one of the best financial decisions you make in 2025.

Understanding Tax Deductions

A tax deduction reduces your taxable income, meaning it lowers the amount of income that is subject to taxation. The more deductions you claim, the less income the IRS will tax. Some deductions are standard, while others are itemized. Standard deductions are pre-determined by the IRS and typically don’t require much paperwork. However, if you have significant expenses in certain areas, like medical costs or home mortgage interest, it may be worth itemizing your deductions.

The standard deduction for 2025 will likely be adjusted for inflation, but it's crucial to stay updated on the latest IRS guidelines. Most taxpayers choose the standard deduction because it's straightforward and guarantees savings. However, itemizing can lead to even greater savings if you’ve incurred significant deductible expenses during the year.

Some of the most common deductions available in 2025 include:

• Mortgage Interest: If you own a home, you can usually deduct the interest paid on your mortgage. This deduction is particularly valuable for new homeowners who are paying significant interest in the early years of their mortgage.
• Charitable Contributions: Donations to qualified charitable organizations are deductible, allowing you to support causes you care about while reducing your taxable income.
• Medical Expenses: If your medical expenses exceed a certain percentage of your income, you may be able to deduct a portion of them. However, this threshold can be high, so this deduction is not available to everyone.
• Student Loan Interest: You can deduct up to $2,500 in student loan interest, even if you don’t itemize. This deduction is a great way for recent graduates to get some relief.

Deductions are available to all taxpayers who meet certain criteria, but some require specific documentation. For example, when claiming medical expenses, you must keep track of all receipts and make sure your total expenses exceed the threshold required by the IRS. If you’re unsure about what you can claim, reaching out to a professional like Matt Brown Stuart could save you time and prevent errors.

What Are Tax Credits?

Tax credits, on the other hand, are a direct reduction of the amount of tax you owe. Unlike deductions, which reduce your taxable income, tax credits reduce your overall tax bill. This is why credits are typically more valuable than deductions. They come in two forms: nonrefundable and refundable.

A nonrefundable credit allows you to reduce your tax bill to zero but no further. In other words, if you owe less tax than your credit, you won’t receive the difference back. However, a refundable credit can give you a refund if the credit exceeds your tax liability. This makes refundable credits particularly valuable, as they can result in a refund even if you owe no tax.

Here are some of the tax credits to keep an eye on in 2025:

• Earned Income Tax Credit (EITC): This is a refundable credit aimed at helping lower-income working individuals and families. It’s one of the most powerful tools for reducing your tax liability, especially for families with children.
• Child Tax Credit: For families with children, the child tax credit is an important tool. In 2025, this credit will continue to help offset the costs of raising kids, and it could potentially provide a significant financial boost, depending on your income.
• Education Credits: The American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC) help offset the costs of higher education. These credits can help students and their families reduce the financial burden of tuition and related expenses.
• Energy-Efficient Home Improvement Credit: If you’ve made energy-efficient improvements to your home, you could qualify for a credit. This could include things like installing solar panels, upgrading insulation, or purchasing energy-efficient appliances.