Deductions reduce your taxable income, so it’s in your best interests to claim as many as possible when filing your tax return.
To get the most lucrative tax deductions, you need to itemize expenses using a Schedule A. This form lets you write off mortgage interest, real estate taxes, charitable contributions and some medical expenses.
However, the Tax Cuts and Jobs Act of 2017 nearly doubled the standard deduction, which means fewer people choose to itemize now. The standard deduction is available to almost all taxpayers who aren’t dependents and, for 2020, is set at $ 12,400 for single taxpayers and $ 24,800 for married couples filing jointly.
While the standard deduction makes more sense financially for most people nowadays, there are still deductions you can claim even if you don’t itemize your return. Keep reading for some of the deductions that anyone can claim.
1. Some charitable donations
Normally, you’d have to itemize deductions to write off charitable contributions. However, the Coronavirus Aid, Relief and Economic Security (CARES) Act included a provision to allow all taxpayers to claim a $ 300 deduction for monetary charitable donations made in 2020.
A bill passed late last year extended this deduction to 2021 and increased it to $ 600 for married couples filing jointly, while keeping it at $ 300 for single filers.
2. Traditional IRA contributions
If you have an individual retirement account, otherwise known as an IRA, you can deduct contributions up to an annual limit set by the IRS. For the 2020 tax year — the one for which your tax return is due this spring — workers younger than age 50 can contribute up to $ 6,000 to an IRA while those age 50 and older can contribute up to $ 7,000.
Only contributions to a traditional IRA are tax-deductible. Roth IRAs aren’t eligible for a deduction since they come with a different set of tax perks.
3. HSA contributions
If you have a qualifying high-deductible health insurance plan, you can open a health savings account (HSA) and deduct your contributions. For the 2020 tax year, those with self-only coverage could contribute up to $ 3,550 to an HSA while those with family coverage had a contribution limit of $ 7,100.
Those age 55 and older are eligible to make an additional $ 1,000 in deductible contributions.
4. Penalties for early withdrawals of savings
Some investments, such as certificates of deposit (CDs), require that you leave money in an account for a certain period. If you don’t, you could get hit with an early withdrawal penalty. Fortunately, the IRS allows people to deduct the penalties reported on Forms 1099-INT or 1099-OID.
While this deduction does not apply to early withdrawals from retirement accounts such as IRAs, the CARES Act is waiving the early withdrawal penalty for up to $ 100,000 taken from retirement funds in 2020 by those affected by the COVID-19 pandemic.
5. Student loan interest
Depending on your income, you may be entitled to deduct student loan interest from your taxes. To see if you’re eligible, go to the IRS website and complete the Student Loan Deduction Interest Worksheet.
6. Educator expenses
Educators working at the elementary or secondary level can deduct up to $ 250 of out-of-pocket expenses related to their job. These costs can include computers, classroom supplies and professional development courses, among other things. For 2020, the deduction also includes protective equipment such as face masks, sanitizer and air purifiers.
7. Alimony paid
If you are making alimony payments to a former spouse, you can deduct those payments from your income. However, this deduction does not apply to everyone. As the IRS says:
“You can’t deduct alimony or separate maintenance payments made under a divorce or separation agreement (1) executed after 2018, or (2) executed before 2019 but later modified if the modification expressly states the repeal of the deduction for alimony payments applies to the modification. Alimony and separate maintenance payments you receive under such an agreement are not included in your gross income.”
8. Self-employment taxes
Federal Insurance Contributions Act (FICA) taxes fund both the Social Security and Medicare programs. While employees split these taxes with their employers, self-employed workers must pay the entire 15.3% tax themselves.
Fortunately, the IRS allows self-employed workers to deduct half that amount from their income taxes. Use Schedule SE or your favorite tax software program to calculate the tax and your deduction.
9. Self-employed health insurance premiums
Self-employed workers can also deduct premiums paid for health insurance coverage for themselves, their spouse and their children.
As with other deductions, there are rules about who is eligible and how much you can deduct. The Self-Employed Health Insurance Deduction Worksheet on Page 89 of the 1040 and 1040-SR instructions can help you figure out how much you can claim.
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