5 Lesser-Known Oklahoma Tax Deductions That Could Save You Money

5 Lesser-Known Oklahoma Tax Deductions That Could Save You Money - Earned Income Tax Credit (EITC)

The Earned Income Tax Credit (EITC) is a valuable tax credit for low-to-moderate-income workers and families in Oklahoma.

This refundable credit can significantly boost tax refunds, with eligible single filers receiving up to $538 and joint filers with three or more children claiming up to $6,660.

Beyond the EITC, Oklahoma offers several lesser-known tax deductions, including the Oklahoma Child Care Credit and the Oklahoma Foster Care Credit, that can help residents save money on their taxes.

The EITC is one of the largest anti-poverty programs in the United States, lifting millions of families out of poverty each year through tax refunds.

The maximum EITC amount in 2022 was $6,164 for taxpayers filing jointly with three or more qualifying children, providing a substantial boost to low-income families.

Approximately 1 in 5 eligible taxpayers fail to claim the EITC, missing out on thousands of dollars in potential tax refunds.

The EITC is unique in that it is a refundable tax credit, meaning that if the credit exceeds the amount of taxes owed, the difference is paid out as a refund.

In Oklahoma, the EITC is especially valuable as it is one of the few refundable tax credits available to residents, providing a critical financial boost.

The EITC has been shown to have long-term positive impacts on children's health, education, and future earnings, making it an important investment in the next generation.

5 Lesser-Known Oklahoma Tax Deductions That Could Save You Money - Deduction for Health Savings Account Contributions

Oklahoma offers several tax deductions related to Health Savings Accounts (HSAs) that can significantly reduce your taxable income. These deductions include the Oklahoma Credit for Qualified Medical Expenses, Self-Only Deduction, Family Deduction, Young Adult Deduction, and Dependent Care Deduction. By taking advantage of these lesser-known tax benefits, Oklahoma residents can save money healthcare costs and better manage their medical expenses. Oklahoma offers a unique tax deduction for contributions to STABLE accounts, which are tax-exempt accounts used to pay for qualified medical expenses. This deduction is made possible by the federal Achieving a Better Life Experience (ABLE) program. The STABLE account deduction stays with the account holder even if they change employers or leave the workforce, providing continuous tax benefits. Unused funds in an Oklahoma STABLE account can be carried over to the next year, allowing for long-term savings and flexibility in medical expense planning. The Oklahoma "Credit for Qualified Medical Expenses" deduction applies to non-deductible medical and vision expenses not covered by insurance, providing additional tax relief for out-of-pocket healthcare costs. The "Self-Only Deduction" for HSA contributions in Oklahoma allows taxpayers to deduct the full contribution amount, even if they don't itemize deductions their tax return. The "Family Deduction" for HSA contributions in Oklahoma enables married couples filing jointly to deduct half the family contribution amount for each eligible dependent, regardless of who made the contributions. Oklahoma's "Young Adult Deduction" for HSA contributions allows dependent young adults between 19 and 25 to claim a deduction for qualified medical and vision expenses that exceed 5% of their adjusted gross income, an often-overlooked tax-saving opportunity.

5 Lesser-Known Oklahoma Tax Deductions That Could Save You Money - Child and Dependent Care Credit

The Child and Dependent Care Credit can provide a valuable tax benefit for Oklahoma families with qualifying children or dependents.

By claiming this credit, taxpayers may receive a refund of up to $1,400 per child or up to $500 for other eligible dependents, helping to offset the costs of care that allows them to work or look for employment.

Although not as widely known as some other deductions, the Child and Dependent Care Credit is an important tax break that Oklahoma residents should consider when filing their returns.

The Child and Dependent Care Credit is not just for parents - it can also be claimed by guardians, grandparents, or other relatives who pay for the care of a qualifying individual to enable them to work or look for work.

The credit can be claimed for expenses incurred for the care of a spouse who is physically or mentally incapable of self-care, in addition to eligible children and other dependents.

The maximum credit amount has increased over time - in 2024, taxpayers can claim up to $3,000 for one qualifying individual and $6,000 for two or more qualifying individuals.

The credit percentage is based on the taxpayer's adjusted gross income, ranging from 20% for higher-income filers to 35% for lower-income filers, providing the greatest benefit to those who need it most.

The Child and Dependent Care Credit is "refundable," meaning that if the credit amount exceeds the taxpayer's total tax liability, they can receive the difference as a refund, rather than just a reduction in taxes owed.

Taxpayers can claim the credit for expenses incurred for care provided in their home, at a daycare facility, at a summer day camp, or by a relative who is not a dependent of the taxpayer.

The eligibility criteria for the credit are quite specific, with the care recipient needing to be either a child under age 13, a spouse or dependent who is physically or mentally incapable of self-care, or a dependent who is a full-time student between the ages of 19 and

The Child and Dependent Care Credit is calculated separately from the Child Tax Credit, and taxpayers can potentially claim both credits, providing even greater tax savings.

5 Lesser-Known Oklahoma Tax Deductions That Could Save You Money - Home Mortgage Interest Deduction

The home mortgage interest deduction allows homeowners who itemize their taxes to deduct interest paid on up to $750,000 of their loan principal.

This deduction can result in significant savings, but it only applies to mortgages secured by a primary or secondary home, and not personal loans.

Additionally, Oklahoma provides other state tax deductions, such as a homestead exemption and a five-year exemption from property taxes for certain home improvements, which could also help Oklahoma residents save money on their taxes.

The home mortgage interest deduction allows homeowners to deduct the interest paid on up to $750,000 of mortgage debt for their primary or secondary residence, providing significant tax savings.

Prior to the Tax Cuts and Jobs Act in 2017, the deduction limit was $1 million, so homeowners with mortgages taken out before December 16, 2017, may still be able to deduct interest on up to $1 million of debt.

In addition to the mortgage interest, homeowners can also deduct related expenses like late payment fees, discount points, and mortgage insurance premiums on their tax returns.

The mortgage interest deduction is only beneficial for taxpayers who itemize their deductions, as it must exceed the standard deduction to provide a tax advantage.

Oklahoma offers a state-level mortgage interest deduction, separate from the federal deduction, allowing homeowners to save even more on their taxes.

Beyond the mortgage interest deduction, Oklahoma provides other valuable tax breaks for homeowners, such as a homestead exemption and a five-year property tax exemption for certain home improvements.

The Tax Cuts and Jobs Act's reduction of the mortgage interest deduction limit has been a point of contention, with some arguing it has negatively impacted the housing market and reduced the incentive for homeownership.

Proponents of the deduction argue that it helps promote homeownership and provides valuable financial support for middle-class families, while critics contend that it primarily benefits higher-income households.

5 Lesser-Known Oklahoma Tax Deductions That Could Save You Money - Deduction for Classroom Expenses (for Educators)

The educator expense tax deduction allows eligible educators to deduct up to $300 of unreimbursed classroom expenses for the 2023 tax year.

Married educators filing jointly can deduct up to $600, but neither spouse can deduct more than $250 each of their qualified expenses.

This deduction applies to expenses for classroom materials such as books, supplies, computers, and other equipment used in the classroom.

It's important for educators to keep detailed records of their eligible expenses to maximize this deduction.

The educator expense deduction was first introduced in 2002 and has remained a valuable tax benefit for teachers ever since.

Eligible educators can deduct up to $300 of their own money spent on classroom supplies, even if they don't itemize their deductions.

Married educators filing jointly can deduct up to $600, but neither spouse can deduct more than $250 each of their qualified expenses.

The IRS defines "eligible educators" as teachers, instructors, counselors, principals, or aides who work at least 900 hours during the school year in a school that provides elementary or secondary education.

Qualified expenses can include items like books, supplies, computer equipment, and other materials used in the classroom, but not expenses for home office use or extracurricular activities.

The educator expense deduction is considered an "above-the-line" deduction, meaning it reduces the educator's adjusted gross income before calculating their tax liability.

Since the deduction was first introduced, the maximum allowable amount has only been increased once, from $250 to $300, in

Educators must maintain detailed records, including receipts, to substantiate their claimed deductions in case of an IRS audit.

The educator expense deduction is not just for teachers - it also applies to eligible administrators, counselors, and aides who work in public or private elementary or secondary schools.

While the deduction is valuable, it is estimated that only about 3 out of 4 eligible educators actually claim the deduction when filing their taxes.

5 Lesser-Known Oklahoma Tax Deductions That Could Save You Money - Student Loan Interest Deduction

The standard student loan interest deduction allows eligible borrowers to deduct up to $2,500 in interest paid on qualified student loans each year, reducing their taxable income.

However, there are other lesser-known tax deductions that Oklahoma residents can take advantage of, such as the Oklahoma Teacher Tax Credit and the Mortgage Interest Deduction, to save even more money.

In addition to the student loan interest deduction, Oklahoma offers a range of other tax deductions that are often overlooked, including the Adoption Expense Tax Credit and the Five-Year Property Tax Exemption for New Residences.

By taking advantage of these lesser-known deductions, Oklahoma taxpayers can significantly reduce their taxable income and keep more of their hard-earned money.

The student loan interest deduction can be claimed even if the taxpayer does not itemize their deductions, making it accessible to a wider range of taxpayers.

The deduction is not just limited to federal student loans; it can also be claimed for interest paid on private student loans, as long as they were used for qualified educational expenses.

Taxpayers can claim the deduction for interest paid on student loans taken out for their own education, as well as for loans taken out for a spouse or dependent's education.

The deduction is available for the lifetime of the loan, not just during the first few years of repayment, allowing borrowers to benefit from it for an extended period.

The income phaseout range for the deduction is adjusted annually for inflation, ensuring that more taxpayers can take advantage of it over time.

Taxpayers can claim the deduction even if their student loan payments were temporarily suspended, such as during periods of deferment or forbearance.

The deduction can be claimed retroactively for up to three years, allowing taxpayers to potentially receive a larger refund by amending past tax returns.

Borrowers who have consolidated multiple student loans can still claim the deduction, as long as the consolidated loan was used solely for qualified educational expenses.

The deduction is not limited to traditional college loans; it can also be claimed for interest paid on loans taken out for eligible vocational and trade school programs.

In certain cases, the student loan interest deduction can be combined with other education-related tax benefits, such as the Lifetime Learning Credit, to maximize tax savings.

The deduction can be particularly beneficial for low- and middle-income borrowers, who may have a higher percentage of their income devoted to student loan payments.