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Navigating 2024 Tax Deductions and Credits in Michigan

Every new year brings a new tax season. With some new changes and additions at both the federal and Michigan state level, we’ve collected the most important tax deductions and credits for you to know about in 2024. Use this list as a starting point for tax planning and contact your tax advisor with questions about your situation.

Understanding Tax Deductions and Credits

Tax credits and deductions are similar–they both reduce your overall tax liability. However, they work differently.

Tax Credit: A “dollar-for-dollar amount” you can claim on your return to reduce the amount of income tax you owe. Tax credits may also increase the amount of your tax refund.
Tax Deduction: Reduces your total taxable income, which can reduce the amount of income tax you owe.

Understanding the tax credits and deductions you may be eligible for will help you plan more effectively to reduce your tax bill. Next, we’ll look at the most popular credits and deductions for your federal and Michigan state taxes in 2024. Talk to a tax advisor for recommendations for your specific situation.

Essential Tax Deductions and Credits for 2024

Here are 12 tax deductions and credits to know about for your federal and state returns. We’ll start with federal income tax deductions and credits, and then cover Michigan state income tax credits.

1. Standard Deduction

As of tax year 2023, the standard deduction is $13,850 for single filers and $27,700 for married filing jointly. Anyone can take the standard deduction as an alternative to itemizing deductions.

2. Saver’s Credit

The Saver's Credit is a federal tax credit designed to encourage low- to moderate-income individuals to save for retirement. For the first $2,000 you contribute to an IRA, 401(k), or other workplace retirement plan, you can receive a credit of $1,000 for single filers and $2,000 for married filing jointly. This is in addition to the existing tax benefits of contributing to a qualified retirement account. However, the saver’s credit impact on your tax bill or refund is affected by other deductions and credits. Income limits and other eligibility requirements apply. Consult a tax advisor to learn more.

3. American Opportunity Tax Credit

This is a federal tax credit for up to $2,500 in qualified education expenses paid during the first four years of college. The AOTC can reduce the size of your tax bill and potentially increase your refund amount. Eligibility is based on your Modified Adjusted Gross Income (MAGI).

4. Lifetime Learning Credit

This federal tax credit is for undergraduate, graduate, and professional degree courses. Claim up to $2,000 in tax credit for college tuition and fees, applicable to any amount of college classes taken. Eligibility extends to taxpayers, their spouses, or dependents enrolled in eligible educational institutions, covering expenses paid. This credit can be claimed regardless of enrollment status, even for just one class. There is no limit on the number of years you can claim the credit.

5. Energy Efficient Home Improvement Credit

Receive up to $3,200 in tax credit for qualified energy-efficient improvements to your home. This includes home energy audits, exterior doors and windows, insulation, AC, heaters, heat pumps, and more. This credit can cover not only the cost of the item, but installation/labor costs as well.

6. Earned Income Tax Credit (EITC)

This is a federal tax credit for low- to moderate-income workers and families. If you qualify for the EITC based on your income level and source of income, you can reduce your tax bill and possibly increase your refund amount.

7. Michigan EITC For Working Families

Similar to the federal EITC; the Michigan EITC offers a state income tax benefit for working individuals with income below a certain limit. In 2023, the Michigan EITC increased from 6% of the federal EITC to 30%. If you qualify for the Michigan EITC, you can lower your tax bill and potentially increase your tax refund.

8. Homestead Property Tax Credit

Qualified Michigan homeowners and renters can get help with property taxes. The credit is based on your property taxes vs. your total household resources. To qualify, your home’s taxable value must be less than $154,400 and your household income less than $67,300.

9. Principal Residence Exemption (PRE) in Michigan

If you own a principal residence in Michigan, you may be eligible for an exemption from local education taxes (but not state education taxes). To qualify, the property must be owned and used as the primary residence by the owner, without disqualifying factors.

10. Home Heating Credit

Qualified low-income Michigan homeowners and renters can get help with heating bills. This program is supported by the federal Low-Income Home Energy Assistance Program (LIHEAP) block grant. Eligibility criteria includes Michigan residency, not being a full-time student or dependent, not living in certain facilities, and meeting income limits. Taxpayers can file the home heating credit claim separately or alongside their Michigan Individual Income Tax Return (MI-1040). The amount of the credit is based on either your standard credit allowance or actual heating costs and household resources.

11. Credit for Income Taxes Paid to Another State

This credit is for income tax paid to a nonreciprocal state, a local government outside Michigan, The District of Columbia (D.C.), or a Canadian province. The amount of the credit is automatically calculated for taxpayers who file both resident and nonresident returns.

12. Farmland and Open Space Preservation Act Tax Credit

Farm owners who enter into a developments rights Agreement with the State may receive certain income tax benefits as well as special assessments for sanitary sewers, water, lights, or nonfarm drainage. If eligible, you can claim an income tax credit in the amount of property taxes and improvements, minus 3.5% of total household income.

13. Retirement and Pension Income Expanded Deduction

This is new for tax year 2023 in Michigan. Retirees can choose the best taxing situation for their retirement benefits. Eligibility for retirement income subtraction is based on taxpayer age and benefit limits apply.

About West Shore Bank’s Wealth Team

With over 25 years of industry experience, you’re in good hands with our Wealth Management advisors. From financial planning to investment management and retirement accounts, we take the time to listen to your needs, evaluate your options, and create a personalized financial plan for you. We also encourage you to work with an accountant or tax professional to help with tax planning and filing your returns. Meet our Wealth Team and contact us with questions!

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