An itemized tax deduction is a qualified expense by which a US taxpayer can claim on their Federal tax returns in order to lower their taxable income. Many tax deductions are subject to the 2% limit, which means you can only deduct expenses that are 2% above your adjusted gross income (AGI). However, there are tax deductions that can be taken without itemizing your return, called above-the-line tax deductions, and can help you save money even if you take the standard deduction.
Some of these deductions are considered temporary, but the majority of above-the-line tax deductions are the same from one year to the next. Many of the below above line tax deductions have income restrictions or other restrictions you need to know. When in doubt, reach out to a tax professional or read IRS publication 17.
Above the Line Tax Deductions
The following deductions are available to everyone who is eligible, regardless of your career or filing status:
– Contributions to an IRA
Money contributed to a Traditional IRA can be deducted up to certain limits.
– Health Savings Accounts Tax Deductions
If you have a Health Savings Account (HSA), you can write off your contributions to the account.
– Qualified Expenses for Moving
For individuals who moved during the year because you were starting a new job or transferred to a new job location – the costs associated with moving may be deducted.
– Alimony or Spousal Maintenance Deductions
If you pay your ex-spouse money in the form of alimony or spousal maintenance, you can deduct the amount that you paid from your income. Don’t confuse alimony with child support – child support is not a tax deduction.
Teachers, Qualified Educators & Students
If your school’s supply budget has been decreased to the point that you find yourself purchasing supplies with your own money to operate your classroom, some of that money can be deducted:
– Educator Tax Deductions
If you are a teacher or school employee, you are allowed up to $250 in deductions for supplies you purchased for your classroom with your own money. If you and your spouse are both educators and file jointly, then you can deduct up to $500 in qualified expenses.
– Student Loan Interest Deductions
Paying back your school loans is a requirement – but you can write off a maximum of $2,500 in school loan interest every year until the loan is paid off (income restriction $75,000 individual and $150k if filing jointly).
– Tuition and Fees Deduction
You may be eligible to write off up to $4,000 per year in tuition and college fees.
Self-Employed and Business Owners
If you are self-employed or own a business but are not itemizing, there are still some tax deductions you may be able to take advantage of, including:
– Self-Employment Tax
If you worked as a freelancer, home party sales representative, or operated a business full time, you probably paid self-employment tax. Half of the self-employment tax you paid is tax deductible.
– SEP IRA Contributions
You can deduct contributions to a SEP IRA or a Simplified Employee Pension Individual Retirement Arrangement.
– Health Insurance for the self-employed
If you paid health insurance premiums as a self-employed individual, you can deduct 100% of the premiums paid.
Reduce Your Adjusted Gross Income (AGI)
Taking any of these tax deductions can reduce your adjusted gross income – which should reduce the amount of taxes owed. The less taxable income you show, the less you owe the IRS. Many of these “above-the-line” deductions require that you fill out additional forms to show your deduction calculation, but it’s worth the effort to reduce your taxable income.