Let’s be honest, no one likes paying income tax. And you definitely don’t want to pay more than your fair share – but many people do. Taking advantage of income tax deductions is one of the best tax-saving strategies that you should know about to lower your tax bill every year.
Here’s how you can do that.
Do You Even Know What a Tax Write-off Is?
Tax deductions reduce your taxable income. Less income means lower taxes. Seems simple, right?
Deductions don’t mean you’ll get a dollar-for-dollar reduction in your taxes. A $100 tax deduction means that you’ll pay taxes on $100 less income, not that your tax bill will be $100 less. But it still lowers your taxes, and that’s a win.
Everyone who files an individual income tax return gets at least one deduction—the standard deduction—but many people have more deductions than that.
Different types of deductions have different effects on your overall tax bill, and knowing the differences between these types of deductions can help you prioritize those that will deliver a bigger tax-saving impact.
Above-the-Line Deductions: What They Are and How to Use Them
The most valuable income tax deductions are above-the-line deductions, meaning they reduce your income before the calculation for Adjusted Gross Income (AGI).
That’s why they’re called “above-the-line”: They appear on your tax return above the line for adjusted gross income.
Since many other tax deductions and credits are limited by AGI, using these special deductions to lower AGI may help you gain eligibility for other lucrative tax-saving measures.
Some examples of these above-the-line deductions are:
- Student loan interest: Taxpayers with qualified student loans may be able to deduct the interest paid on those loans, up to $2,500 per year. The IRS has a tool for this called “Can I claim a deduction for student loan interest?” on www.irs.gov.
- Retirement contributions: If you contributed to a traditional IRA, you can deduct that as an above-the-line income tax deduction. This deduction might be limited if you (or your spouse, if filing jointly) have access to a workplace retirement plan and your income exceeds the IRS limits.
- Educator expenses: Educators can deduct up to $300 ($600 if married filing jointly and both are teachers) of the money you paid out of pocket for classroom supplies or similar expenses. This deduction is available for K-12 teachers, counselors, and principals who work at least nine hundred hours during the school year. Qualifying expenses include things like books, software, equipment, and professional development courses.
- Self-employed health insurance: If you’re self-employed and pay for your own health insurance, you may be able to deduct the full year’s premiums with this income tax deduction. You can’t take it if you had access to an employer-based plan (including through your spouse). But if you had no other option and paid your own health premiums, you can deduct your medical, dental, and vision insurance and possibly long-term care premiums.
- Half of self-employment tax: Self-employed taxpayers get hit with the 15.3% self-employment tax, and half of that can be taken as an above-the-line deduction. If you file Schedule SE (the form that calculates and reports any self-employment taxes due) with your tax return, you’ll be able to deduct 50% of the calculated tax here, with no restrictions based on income or outside factors.
You can claim above-the-line deductions along with your standard or itemized deductions.
The Standard Deduction – What It Is and Why You Want To Use It
If you’ve ever done your own taxes, you probably know about the standard deduction. It reduces adjusted gross income by a specific amount set by the IRS so that every household will have at least some income that’s not subject to federal income taxes—no questions asked.
The amount of the standard deduction depends on your filing status (like single or head of household), age, dependency status, and whether or not you’re blind. The deduction gets subtracted from your AGI to get to your taxable income.
For tax year 2024, the tax return you’ll file in 2025, the standard deductions based on filing status are:
Single taxpayers who are over sixty-five or blind get additional standard deductions including an extra $1,950 standard deduction, and an extra $3,900 if they’re over sixty-five and blind. Married taxpayers who are over sixty-five or blind get an extra $1,550 standard deduction each, and an extra $3,100 each if they’re over sixty-five and blind.
Dependents—meaning people who are claimed as dependents on someone else’s tax return—get a reduced standard deduction. The reduced deduction is either a flat $1,300 or their earned income (such as from a job) plus $450, up to the amount of the regular standard deduction.
In some cases, a taxpayer may not be allowed to take the standard deduction. The most common situation is for those who are married filing separately, where if one spouse itemizes, they both must itemize.
Itemized Deductions: These Things Can Add Up
Unlike the standard deduction, which is the same for everyone, itemized deductions vary greatly by each taxpayer’s personal situation.
These itemized deductions capture expenses paid for during the year that can be used to reduce taxable income and taxes owed. They get listed—itemized—on Schedule A and filed along with your Form 1040.
Depending on the expenses you have each year, itemizing deductions can add up to quite a bit of savings on your final tax bill.
You can choose to take itemized deductions in any tax year that would give you a bigger tax break than using the standard deduction. Plus, you can switch back and forth from year to year.
As of 2024, the most commonly taken or “big five” itemized deductions are:
- Unreimbursed medical expenses in excess of 7.5% of AGI
- State and local taxes (SALT) up to $10,000
- Charitable donations up to 60% of AGI
- Interest on mortgage loans (up to $750,000 used to buy, build, or substantially improve your home)
- Unreimbursed casualty and theft losses from federally declared disasters that exceed 10% of your AGI
There are some other allowable itemized deductions that may apply in certain situations.
For example, you can deduct gambling losses to the extent of gambling winnings included in your income. And people with disabilities can deduct impairment-related work expenses.
There are additional rules for all of the itemized deductions and details on what can and can’t be included in each category, and what records are required by the IRS (in case you get audited).
You can find full details in the instructions for Schedule A on the IRS website at www.irs.gov.
Little Known Deductible Medical Expenses
Along with payments for doctors, dentists, and prescriptions, a lot of other eligible expenses qualify for a medical expenses deduction.
They include:
- Glasses or contacts
- Purchase, training and maintenance of service animals
- Mileage for going to appointments
- Travel and transportation costs related to medical appointments and procedures
- Acupuncture
- Chiropractors
Make sure to include everything you can to get the most out of this deduction, especially in years you know you’ll have extra medical expenses (like the year you have a baby, for example, or have a surgery scheduled).
Understanding Your Taxes Saves You Money
Taxes are inevitable. But you can use these income tax deductions to legitimately have a lower tax bill and keep more of your hard-earned cash every year.
I explain how you can use more tax-saving strategies, as well as how the tax system works and how it relates to your overall financial state in my latest book, Taxes 101.
I show you how different tax laws apply to you and how they can lead to deductions and credits that will reduce your tax bill. I also show you how to use information about the tax system to make better choices for your overall financial wellness.
Click on the button below to learn more about Taxes 101 and get your copy now.
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