The Deduction and Credits section of the exam tests the candidate's knowledge of the various deductions and credits that can be claimed on individuals' tax returns. Deductions and credits may help to reduce a taxpayer's overall tax liability and include retirement deductions, itemized deductions and various credits.

Itemized Deductions 
Taxpayers can take the standard deduction on their federal income tax returns or can choose to itemize deductions. Taxpayers generally itemize deductions only if the outcome is more favorable than taking the standard deduction. Itemized deductions are made on Form 1040 Schedule A. The IRS determines which deductions are allowed and limitations for each. Enrolled Agents should have a thorough understanding of deductions and limitations including:

  • Medical and dental expenses 
  • Taxes paid – state, local, real estate taxes, personal property taxes other
  • Interest paid – home mortgage and points, mortgage insurance premiums, investment interest, etc.
  • Gifts to charity – gifts by cash or check, non-cash, documentation required
  • Casualty and theft losses 
  • Job expenses and miscellaneous deductions – unreimbursed employee expenses (job travel, union dues, job education, etc.), tax preparation feeds, safe deposit box, etc.
  • Other miscellaneous deductions
  • AGI limitations 
  • Allowable itemized deductions for Form 1040NR

Credits
Credits reduce tax liability dollar-for-dollar and have a greater impact than deductions. The laws regarding tax credits do change and certain tax credits may be available only for a limited time. In addition, certain tax credits may only be claimed once (or up to a certain amount) during a specified period. Enrolled Agents should be aware of the credits that taxpayers currently may be able to subtract from their income tax returns, including:

  • Adoption credits
  • Child and dependent care
  • Child tax credits
  • Education
  • Foreign tax
  • Mortgage interest
  • Earned income tax credit (treated as a payment)
  • Retirement contribution credit


Taxation And Advice

Related Articles
  1. Taxes

    Want A Bigger Tax Refund? Don't Itemize

    Six reasons why many taxpayers can save money and time by claiming the standard deduction.
  2. Taxes

    Tax Credits And Deductions For Parents

    Your children can help you save on your taxes with these credits and deductions.
  3. Taxes

    Calculating the Mortgage Interest Tax Deduction

    The amount of money you save by paying your mortgage off quickly will far exceed any benefit from the mortgage interest tax deduction.
  4. Taxes

    Major Tax Credits Expiring In 2013

    Here are the major changes and tips that you need to know before filing your taxes for 2013.
  5. Taxes

    Increase Your Tax Refund With Above-The-Line Deductions

    Find out about these deductions and how you can use them to lower your tax bill.
  6. Taxes

    Do Your Research Before Claiming These Deductions

    Be sure to read the fine print about any deduction or credit that you’re planning to claim.
  7. Taxes

    How To Get The Most Money Back On Your Tax Return

    These tips will help you get a larger refund this year, while teaching you how to pay less taxes going forward.
  8. Personal Finance

    11 Tax Deductions You Can't Actually Write Off

    These are some of the most common tax write-offs that you can't really claim.
  9. Taxes

    Valuable Year-End Tax Moves for 2016 (Part Three)

    Here's a look at tax strategies for itemized deductions, charitable gifts and other tax credits.
  10. Taxes

    The Most Overlooked Tax Deductions

    The receipts you cram into your wallet could be replaced with cash come tax season.
Frequently Asked Questions
  1. Where else can I save for retirement after I max out my Roth IRA?

    The first option to explore is to determine if you can contribute to a 401(k), 403(b), or 457 plan at work. If your employer ...
  2. How did George Soros "break the Bank of England"?

    In Britain, Black Wednesday (September 16, 1992) is known as the day that speculators broke the pound. They didn't actually ...
  3. What counts as "debts" and "income" when calculating my debt-to-income (DTI) ratio?

    It's important to know your debt-to-income ratio because it's the figure lenders use to measure your ability to repay the ...
  4. Who are Monsanto's main competitors?

    Learn about Monsanto Company's two main operating divisions and its main competitors within each sector, including The Mosaic ...
Trading Center