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Are tax credits better than deductions? Advice for top tax questions

Personal finance expert Ted Jenkin joined Scripps News to answer viewers' top questions about tax season.
Are tax credits better than deductions? Advice for top tax questions
Posted at 7:19 PM, Mar 21, 2024

Finances are often a top-of-mind subject for many Americans, but come tax season, it's a whole different beast. That's when you have to spend time thinking of how you're going to file, what you can write off, how much time you have left to procrastinate and so on. 

But even after all that time spent thinking, there are typically some questions still left lingering behind after you file — questions you may have forgotten about until they popped up again this year.

And now as next month's tax deadline looms, it's now or never to get some clarity. Personal finance expert and founder/CEO of oXYGen Financial Ted Jenkin joined Scripps News to help answer some of your tax(ing) questions.

If I'm on disability or I'm retired, do I have to file taxes?

Jenkin told Scripps News he thinks it's "always" a good idea to file and potentially get your tax return. But if you're on disability, it's case by case.

The finance expert said those who are getting disability insurance through their employer probably should file, but for those getting Social Security Disability, "you probably don't need to file."

The same goes if you're retired and on Social Security. Jenkin said in those cases, you probably don't need to file, but it's always a good idea to do so anyway. 

"Remember this: If the IRS owes you money, you can wait as long as you want; they're going to pay you. But if you owe money, you better file those taxes because interest and penalties can add up," he told Scripps News.

Here is what the IRS has to say about retirees and tax season.

What's the difference between a tax credit and a tax deduction, and which is better?

The IRS defines a tax deduction as "an amount you subtract from your income when you file so you don't pay tax on it." Jenkin says tax deductions, like a 401(k) or an HSA, get you to your taxable income, which is the amount the IRS uses to calculate how much you owe. 

The federal body defines a tax credit as "an amount you subtract from the tax you owe." Jenkin says these are what can reduce the amount you owe "dollar-for-dollar." He told Scripps News that's why credits are better than deductions because "it reduces exactly what you owe, not your taxable income."

SEE MORE: Talking Taxes: Scripps News answers viewers' biggest tax questions

Can I deduct my student loan interest?

Jenkin says the answer to this question is "maybe."

The IRS states you may "deduct the lesser of $2,500 or the amount of interest you actually paid during the year." But Jenkin says it depends on something called your MAGI, or modified adjusted gross income. 

Ultimately, that means if you're a single filer making less than $75,000 or a married couple making less than $150,000, you can fully deduct the interest. But above those levels, it starts to phase out, and it also depends on the type of loan you have.

Jenkin says those with student loans should have gotten a Form 1098-E in the mail. That will tell you how much interest you paid on student loans in the calendar year.

Is there a first-time homebuyer tax credit available this year?

The short answer is … no. But Jenkin points to the bill President Joe Biden introduced in his March 7 State of the Union address as something that might change that.

The proposed bill would give first-time homebuyers $10,000 in tax credits split into two years — so $5,000 each. It's aimed to help middle-class families into their first homes, but it all depends on if Congress will enact the proposal.

If your question didn't get answered here, you can submit it to Scripps News to answer in two ways: You can call our toll-free viewer hotline at 1-833-4SCRIPPS, or post your question on X with #TalkingTaxes.


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