One of the key strategies for lowering your tax burden is understanding which deductions you qualify for. While some are straightforward, others come with nuances that make eligibility harder to determine.
In Ohio, there are a few unique deductions that every resident should know about to lower their tax burden. Whether you’re a new homeowner, just starting a family, or retired, these deductions can help you optimize your financial strategy come tax time.
Standard Deduction vs. Itemized Deductions
The standard deduction in the federal tax system is a fixed dollar amount that is deducted from your total taxable income. The amount varies based on your current filing status. For the 2024 tax year, the federal standard deduction is $14,600 for single filers, $29,200 for married couples filing jointly, and $21,900 for heads of household.
Itemized deductions involve listing each expense that you subtract from your taxable income separately. As a taxpayer, you decide which of these two options provides you with the greater deduction, and you select that method when filing your federal taxes.
Unlike the federal system, Ohio does not offer itemized deductions for state tax filings. Instead, Ohio offers specific deductions and credits that residents can take advantage of to lower their taxable income. This makes Ohio somewhat unique, which is why residents need to be aware of the specific deductions available to them.
To help you navigate your options, here are the top Ohio tax deductions every resident should consider when filing.
State and Local Tax (SALT) Deduction
The SALT deduction allows you to deduct up to $10,000 in state and local income, sales, and property taxes. This deduction is for federal filing, and although it’s not specific to Ohio, it can lead to substantial tax savings for Ohio residents.
The reason is that many cities in Ohio, like Columbus, Cleveland, and Cincinnati, charge local income taxes. Ohio residents living in cities that charge an income tax can take advantage of the SALT deduction to lower their tax burden and provide relief.
Ohio Homebuyer Plus Account Deduction
An Ohio Homebuyer Plus Account is open to any Ohio resident who is at least 18 years old. The account has a minimum balance requirement of $100 and a maximum of $100,000. Residents can open an account at any participating bank or credit union. As an Ohio resident, you can deduct up to $5,000 per year per contributor from your Ohio-adjusted gross income. So, a married couple filing jointly can deduct up to $10,000.
One thing to be aware of with the Ohio Homebuyer Plus Account is that if you plan on moving out of the state before withdrawing the money, the tax benefit no longer applies. Withdrawn funds also have to be spent on a down payment or closing costs for the contributor’s primary residence.
Ohio Retirement Income Credit
Retirees in Ohio can take advantage of this credit of up to $200 on qualifying retirement income. To qualify, your modified adjusted gross income (after exemptions) must be below $100,000. Retirement income from a qualified pension, retirement, or profit-sharing plan due to retirement is all eligible.
However, income that is already deducted from your Ohio tax return doesn’t qualify. For example, since Social Security or military retirement benefits are not taxed in Ohio, they don’t qualify for the Ohio Retirement Income Credit.
Ohio Medical Savings Accounts (MSAs)
You may already be familiar with health savings accounts (HSAs), which have federal tax advantages. HSAs allow you to contribute to a tax-advantaged account and then use those funds to pay for qualifying medical expenses that insurance does not cover.
Ohio has its own version of these tax-advantaged accounts, which are known as medical savings accounts (MSAs). You can deduct annual contributions of up to $4,300 for singles and $8,550 for families from your Ohio state income.
Just remember that these are separate from federal HSAs, and you can’t deduct Ohio account contributions with your federal filing.
Ohio 529 Plan (CollegeAdvantage)
The Ohio 529 Plan, also known as CollegeAdvantage, is managed by the Ohio Tuition Trust Authority, an agency within the Ohio state government. CollegeAdvantage allows Ohio residents to deduct up to $4,000 per beneficiary that’s deposited into a CollegeAdvantage account.
There are also additional tax benefits to CollegeAdvantage, including that it allows for unlimited carryforward. If you deposit more than $4,000 per beneficiary in a single year, you can deduct the difference in subsequent years until you’ve deducted the full amount.
Interest and growth within a CollegeAdvantage account are free from federal and Ohio state income tax as long as withdrawals are used for qualifying academic expenses such as tuition, books, student housing, and supplies.
Finally, anyone can contribute to an Ohio CollegeAdvantage account and receive the tax benefits. This means extended family members or friends can also help save money for a child’s education.
More Ways To Optimize Your Ohio Tax Deductions
Ohio has some unique tax-saving opportunities, whether you’re looking to start a new life in the state or are planning for retirement. Just make sure to review the annual limits on contributions and deductions, as they often change due to inflation and tax code updates.
If you’re concerned that you might not be taking advantage of every tax savings option that Ohio offers, check with one of the qualified tax professionals at Royal Oak Financial Group. Our team of local tax experts can walk you through each possible deduction so you can put more of your hard-earned money toward your future.
Contact Royal Oak to learn more about the tax-saving opportunities you can start taking advantage of today.
