Essentially, tax cuts reduce the amount of revenue the government actually taxes. The lower your taxable income, the smaller your tax bill will be.
Lower adjusted gross income (AGI) can also unlock other tax benefits, including credits, phaseouts, and lower effective tax rates.
We asked tax experts which deductions would have the biggest impact on the average filer. This is what they told us.
learn more: What is taxable income? How to reduce it?
The best tax deduction really depends on how you file your taxes. Each year, you can choose between the standard deduction or itemized deductions. This decision can significantly impact what deductions you can take.
Deduction standard
According to the Tax Policy Center, about 91% of U.S. taxpayers will take the standard deduction by 2023.
That makes it the most widely used tax break in the country—and it’s easy to see why.
“Since it nearly doubled in 2018 and is now rising with inflation, the standard deduction has quietly become a middle-class tax deduction,” said Craig Toberman, CPA and certified financial planner at Toberman Becker Wealth in St. Louis. “That means millions of people no longer have to itemize to get a meaningful tax break.”
Uncle Sam will automatically deduct $15,750 to $31,500 from your taxable income without you having to lift a finger. You don’t need a box of receipts or a spreadsheet. The standard deduction is the baseline – everything else either stacks on top of it or replaces it.
Starting this year, taxpayers 65 and older can claim a new “senior bonus” deduction of up to $6,000 ($12,000 for married couples), which is stacked on top of the standard deduction.
While this is a big boost for most people, it comes with a catch: If your modified AGI exceeds $75,000 for an individual, or $150,000 for a married couple, the additional premium benefits start to phase out.
Learn more: Standard deduction vs. itemized deductions: How to decide which tax filing method is right for you
You can claim certain deductions even if you don’t itemize. These are called “above-the-line” deductions, and they reduce your total taxable income. Here are some of the most valuable items you can bring on the standard deduction.
IRA and 401(k) contribution deductions
Think of retirement account contributions as a win-win: Not only do you save for the future, but you also lower your taxable income this year.
Traditional 401(k) and Traditional IRA contributions reduce your taxable income dollar for dollar, up to annual limits.
The pension contribution limits for the 2025 tax year are:
“The retirement contribution deduction can be a very powerful planning lever, because maxing out a 401(k) can reduce your taxable income by more than $20,000 in your high-earning years while providing for future independence,” Toberman says.
If you’re a business owner or freelancer, the tax savings potential is even higher. In addition to a standard IRA, you can protect a large portion of your income with a SEP IRA or Solo 401(k).
Didn’t contribute to a retirement account last year? The IRS allows you to make IRA contributions until tax date (April 15, 2026) and apply them retroactively to your 2025 tax return. As long as your IRA is open by December 31, 2025, you can use these last-minute savings to reduce your taxable income, even if 2025 is already in the past.
With expanded eligibility rules for 2026, more people will soon be able to take advantage of the tax savings offered by health savings accounts (HSAs).
HSA contributions offer a triple tax benefit:
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Donations are tax deductible.
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The money grows tax-free.
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Withdrawals for qualified medical expenses are tax-free. Once you reach age 65, non-medical withdrawals are also tax-free.
To qualify, you must be enrolled in a high-deductible health plan (HDHP). Starting in 2026, all bronze and catastrophic plans in the healthcare market will also work with HSAs.
Experts like HSAs because they can function like a second retirement account. You can invest these funds, let them grow, and even pay yourself back for past medical expenses in a few years.
HSAs are not right for everyone. Their high annual deductibles can leave people with chronic health problems facing hundreds of dollars in out-of-pocket costs when paying high deductibles. But if you’re relatively healthy, you can use an HSA as another way to lower your taxes and save for the future.
learn more: FSA vs. HSA: Which Account Is Best for You?
Whether you have federal or private student loans, you may be eligible to recoup some of the interest when you file your taxes,
Whether you take the standard deduction or itemize deductions, you can deduct up to $2,500 in student loan interest per year.
That said, experts are blunt about this tax break: It’s helpful, but limited.
“The student loan interest deduction helps at the margin, but it quickly fades away, so it often disappoints high-income earners,” Toberman said.
In tax year 2025, the student loan interest deduction will begin to phase out once modified AGI reaches $85,000 (if you file as single or head of household) or $170,000 (if you file jointly). $100,000 for single filers and $200,000 for married couples disappear completely.
learn more: Free Tax Filing: How to File Your 2025 Tax Return for Free
Generally speaking, itemizing only makes sense if your total itemized deductions exceed the standard deduction — again, $15,750 for a single filer and $31,500 for a married couple.
But itemizing still makes sense for homeowners, high earners in high-tax states and some other filers.
If you itemize, here are some additional deductions to keep in mind.
State and local tax (SALT) deduction
Homeowners in high-tax states finally get a reprieve as the state and local tax (SALT) deduction cap quadruples to $40,400 for the 2025 tax year.
The big jump from the old $10,000 limit imposed by the 2017 Tax Cuts and Jobs Act will last through 2025, making it the defining tax change of the year for many residents.
“The story of the year in 2026 is SALT,” said Robert Persichitte, CPA and certified financial planner at Delagify Financial in Arvada, Colorado.
The SALT deduction allows you to deduct a variety of non-federal taxes you pay, including:
Persichitte said the previous $10,000 limit made SALT “either irrelevant or easily overlooked by most taxpayers I work with.”
That’s because low-income homeowners typically don’t itemize, so their property taxes bring them zero federal benefits. Meanwhile, high-income earners in high-tax states typically pay up to the $10,000 cap in state income taxes alone, so their property taxes and other local taxes don’t add any additional impact to their federal tax returns.
But with the cap jumping from $10,000 to $40,000 this tax year ($20,000 for married filing separately), some taxpayers may realize thousands of dollars in additional deductions and make meaningful cuts to their federal tax bills.
“Items like property taxes, vehicle registration taxes and sales taxes on large purchases will start to come into play again,” Persicht said. “So be sure to share this information with your tax preparer.”
learn more: 8 tax deductions for homeowners
You can deduct mortgage interest paid to buy, build, or significantly improve your primary or secondary residence. The deduction only applies to interest, not principal, which is why it’s most valuable in the early years of a mortgage.
“Higher interest rates are starting to exceed the standard deduction,” Pesicht said. “Mortgage interest is again important for tax purposes.”
Most taxpayers can deduct all interest, but the limit depends on when the mortgage was withdrawn. Debt incurred before December 16, 2017 is deductible up to $1 million, while newer loans are capped at $750,000 (or $375,000 if married filing separately).
New this year: Private mortgage insurance (PMI) and other mortgage insurance premiums are again deductible as qualified residential interest. This is a permanent change, but it will be phased out for homeowners with modified AGI over $100,000.
Since you can now deduct up to $40,400 of SALT plus mortgage interest, more people may find it more advantageous to itemize in 2026 than take the standard deduction.
“It’s worth checking again,” Pesicht said.
If you make donations to qualified charities and itemize them, you can deduct those donations.
Cash donations are usually deductible up to a percentage of income, while donated items are usually deducted at their fair market value. Documentation is critical. No receipt means no deduction.
Starting with the 2026 tax year, the first 0.5% of your AGI donated to charity will not count as a tax deduction.
So if you make $100,000, the first $500 you give away won’t help your taxes, only the amount above that, said Jason Gakeler, a CPA and certified financial planner at Accounting Resource Group in Minneapolis.
Experts like Gackler warn against overestimating this deduction. Small donations do add up, but rarely push someone over the standard deduction threshold on their own.
“I always tell my clients that the main goal here should be charitable intent, not necessarily tax savings,” Gackler said.
Starting in tax year 2026, even taxpayers who take the standard deduction can benefit from donations to charity. For cash donations to nonprofit charities, you can deduct up to $1,000 per person ($2,000 for married couples filing jointly). Tax reform was one of many items signed into law with the passage of the Big Beautiful Act in July 2025, which includes deducting tips and overtime pay.
On paper, medical expenses may seem like a solid deduction, but in reality, they can be difficult to claim.
“Medical expenses are often the hardest itemized deduction to benefit from,” Gackler said.
Medical expenses are deductible only if they exceed 7.5% of adjusted gross income. This is a high standard, which makes it difficult to qualify for the deduction.
For example, if your AGI is $60,000, only medical expenses over $4,500 are deductible. So, if you have $7,000 of qualified medical expenses, only $2,500 will be included on Schedule A.
Still, this deduction can be valuable for families dealing with long-term care expenses, so medical expenses make up a large portion of monthly income.
“But a lot of young people may not benefit from collecting receipts,” Gackler said.
learn more: Is health insurance tax-deductible? Here’s what you can claim.
A tax deduction reduces your taxable income. If you earned $60,000 and claimed a $10,000 deduction, you would have earned $50,000 in the eyes of the IRS. Deductions do not reduce your tax bill piece by piece like a tax credit, but rather reduce your taxable income.
Taking the standard deduction and then layering your retirement contributions unlocks the biggest, easiest savings for most Americans. Add in some HSA contributions and/or student loan interest, and you can significantly reduce your taxable income.
On the other hand, if you itemize, mortgage interest, SALT, and charitable contributions are the most important. But remember, they will only exceed the standard deduction if they are high enough overall.
Most deductions are reported directly on your tax return, either automatically (such as payroll deductions) or by reporting on the appropriate form. Itemized deductions require Schedule A. You can claim above-the-line deductions whether you itemize or not.
