Living in a state without an income tax—like Florida, Texas, Tennessee, or Nevada—means you won’t worry about filing state returns. But at the federal level, deductions and credits still play a critical role in reducing your IRS bill. Here’s a detailed breakdown of federal deductions that taxpayers in no-income-tax states should prioritize in 2025.
Who Are “No-Income-Tax” Filers?
Nine U.S. states currently have no state-level income tax: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, Wyoming, and New Hampshire (limited to investment income). Residents in these states file only federal tax returns, making federal tax planning even more essential.
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Federal Deductions to Prioritize in 2025
1. Standard Deduction
For 2025, the standard deduction is $14,600 for singles and $29,200 for married couples. Most taxpayers in no-income-tax states will benefit from claiming this rather than itemizing.
2. Mortgage Interest Deduction
Homeowners who itemize can deduct mortgage interest on loans up to $750,000. This deduction remains one of the most valuable for taxpayers with larger mortgages.
3. Charitable Contributions
If you itemize, donations to qualified charities remain deductible—up to 60% of adjusted gross income for cash donations. Donor-advised funds and stock donations can also provide tax-efficient strategies.
4. Medical Expense Deduction
Out-of-pocket medical expenses exceeding 7.5% of AGI are deductible. This includes prescriptions, medical travel, and long-term care premiums.
5. Retirement Account Contributions
Contributions to 401(k)s, IRAs, and HSAs reduce taxable income at the federal level. These accounts offer powerful long-term tax savings.
Other Credits to Watch
- Child Tax Credit – Up to $2,000 per child under 17.
- Education Credits – The American Opportunity Tax Credit (AOTC) and Lifetime Learning Credit (LLC).
- Earned Income Tax Credit (EITC) – For qualifying low- to moderate-income workers.
Why It Matters for No-Income-Tax States
Since residents in these states don’t worry about state-level deductions or credits, every tax-saving strategy depends on federal rules. This makes federal deduction planning more impactful for maximizing refunds and reducing IRS liabilities.
Example: Florida Taxpayer
James, a Florida resident, takes the standard deduction of $14,600 but also contributes $6,000 to his IRA and paid $1,500 in student loan interest. Even without a state income tax return, his federal taxable income is lowered significantly through these federal deductions.
Key Takeaways
- Federal deductions matter more in no-income-tax states.
- Standard deduction is often the default choice, but itemizing may help homeowners and donors.
- Retirement contributions and education credits can further reduce your IRS bill.
