Taxes 101: Deductions and Credits

Overpaying taxes isn’t just poor stewardship; it can genuinely hurt you financially, and it robs you of money you could invest in the people and experiences you love. At Lord & Richards, we want to help you get ahead of taxes through our Retirement Freedom Review™. This review is important whether you’re retired yet or not. As part of our process, we provide you with a complete picture of your tax situation and begin putting a plan in place to reduce your taxes, both now and for the future. The decisions you make today have major long-term implications, and they compound over time.

 Let’s talk about deductions and credits, two tools you want to maximize now. Deductions are great because they reduce your taxable income and, in turn, lower your tax bill. But credits are even better because they directly reduce the amount of taxes you owe. For example, having children may allow you to receive a net payment from the government. Some people qualify for credits simply due to their income level. This is part of how the government uses taxation as a method of wealth redistribution: funding not only government operations but also social programs that support those in need. You want to take advantage of every available deduction and credit.

 A deduction lowers your taxable income. For instance, if you earn $50,000 and receive a $10,000 deduction, you’re only taxed on $40,000. Let’s explore the main types of deductions.

 The standard deduction in 2025 is as high as $30,000 for married couples and $15,000 for individuals. If you are 65 or older, or blind, you get an additional $1,600 per person if you’re married or $2,000 if you’re single. These are significant figures, and for most people, the standard deduction is enough.

 Alternatively, you can itemize deductions using Schedule A on your tax return. However, it can be difficult to gather enough deductions to exceed the standard deduction amount, so many people opt for the standard. It’s essentially a freebie from the government, generously increased under the Tax Cuts and Jobs Act, but there’s no guarantee it will remain at this level, so take advantage of it while you can.

If you have the potential for higher deductions, like operating a business, making charitable contributions, or other deductible costs, you may benefit from itemizing. Whether you prepare your own taxes or hire a professional, it's essential to track deductible expenses carefully throughout the year.

 Let’s return to credits, which are particularly beneficial because they’re often designed to encourage specific behaviors or support certain situations. The health care tax credit is one example. It is not so much an incentive but a relief for those with qualifying health care costs.

 There’s also the Earned Income Tax Credit (EITC) for low-income earners, which can result in receiving money back from the government. Some credits are refundable, meaning you can receive a check even if you don’t owe any tax. The Saver’s Credit encourages retirement savings, and the Child Tax Credit puts money back in your pocket based on the number of children you have. There’s also the Foreign Tax Credit, which offsets taxes paid to other countries.

 Here’s something to think about: are you in a position to benefit from tax planning? Are you taking advantage of what we call “taxes on sale?” If not, we can help. At Lord & Richards, our comprehensive review looks at how you’re filing, what deductions and credits you’re claiming, and how your investments play into your tax picture. We’ll cover investment-specific tax strategies in an upcoming “Taxes 201” article, which will take things to a deeper level.

 Meanwhile, think about what you can do now, whether you're retired or preparing for retirement. For example, Required Minimum Distributions (RMDs) begin at age 73 and require you to withdraw money from your IRA to be taxed. There’s also the issue of how your assets are owned and how your Social Security benefits are taxed. The financial decisions you make in your 20s, 30s, and 40s can significantly affect how much of your Social Security income is taxable later on. Even if you’re already near or in retirement, there are still proactive steps you can take.

 Medicare premiums are another area deeply affected by your tax and income choices. If all we had to worry about were seven brackets and a few credits and deductions, this would be simple. But the reality is, there are many aspects of taxes to consider and many different planning tools available. We aim to avoid either oversimplifying or overcomplicating your situation.

You deserve to work with tax professionals who can help you build a complete plan for financial independence in retirement. That’s what our Retirement Freedom Review™ at Lord & Richards is all about. We want to help you reduce taxes and gain the freedom of wealth, time, and health that you deserve. It all starts with a phone call.

Investment Advisory Services offered through Lord and Richards Wealth Management, LLC, a Registered Investment Adviser.