Limitations to IRS Deductions & Credits

To help taxpayers save on their annual income taxes, the Internal Revenue Service allows taxpayers to claim tax deductions to lower their taxable income, as well as tax credits to directly reduce the amount of their tax liability. However, each of these deductions and credits has its own set of requirements and limitations.

Taxpayer Characteristics

All deductions and credits require taxpayers to possess certain characteristics. For example, some deductions require taxpayers to file jointly with a spouse, while others require them to be under age 65 or caring for a child for more than half of the year. Many deductions also require taxpayers to itemize. If your characteristics satisfy the requirements for a given deduction or credit, you can typically claim it as long as your income also meets any threshold the IRS has imposed.

Adjusted Gross Income

Most deductions and credits impose limits on the amount of your adjusted gross income. Some deductions and credits are available only to taxpayers with adjusted gross incomes below a set limit, while others may simply decrease as adjusted gross income increases. Adjusted gross income limits are typically higher if you file as head of household or if you file jointly with a spouse. In some cases, adjusted gross income limits are also higher if you are over 65 or have qualifying children.

Maximums

All credits and deductions carry limits. Some carry a specific dollar limit. For example, the child tax credit cannot exceed $1,000 for each child. Other credits and deductions are limited by your income. For example, you can typically claim charitable deductions up to 50 percent of your adjusted gross income. Still other credits and deductions have specific limits for taxpayers whose adjusted gross income falls within certain ranges. For example, the maximum child and dependent care credit is 35 percent of your qualifying expenses, but this percentage decreases as your adjusted gross income increases.

Considerations

The IRS doesn't limit the number of deductions or credits you can claim in a single tax year. However, you cannot deduct more income than you earned. While some tax credits are refundable, which means that you can claim them even if you don't owe any tax, others are not. Some deductions and credits are available only for a certain number of years. For example, you can claim the American Opportunity credit for qualified college expenses no more than four times per student.