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

    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.
  2. 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.
  3. Taxes

    Top Tax Deductions Not to Overlook

    If you want to pay as little as possible in taxes, it's important to learn about all the different credits and deductions available. Here's a primer.
  4. 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.
  5. 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.
  6. Taxes

    The Most Overlooked Tax Deductions

    The receipts you cram into your wallet could be replaced with cash come tax season.
  7. 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.
  8. Tech

    Top Tax Tips to Deduct Investment Management Fees

    Investment expenses can be deducted by those who meet three main criteria. Here's what they are and how they work.
  9. Taxes

    How To Get The Most Money Back On Your Tax Return

    Many people pay more taxes than they have to simply because they don’t know better. Here are a few suggestions for getting the most out of your tax return.
Frequently Asked Questions
  1. What are the Differences Between Affiliate, Associate and Subsidiary Companies?

    All three of these terms refer to the degree of ownership that a parent company holds in another company. Read on to find ...
  2. What Does it Mean if the Correlation Coefficient is Positive, Negative, or Zero?

    Learn what the correlation coefficient between two variables is and what positive, negative and zero correlation coefficients ...
  3. What's the Difference Between a Market Economy and a Command Economy?

    Set by supply and demand, a market economy operates through a price system; in a command economy, governments control the ...
  4. What Factors Cause Shifts in Aggregate Demand?

    Find out how aggregate demand is calculated in macroeconomic models. See what kinds of factors can cause the aggregate demand ...
Trading Center