12 Tax Deductions: It is not necessary to itemize to deduct these expenses on your tax return. When preparing your tax return, it is in your best interest to claim as many deductions as feasible, since they reduce your taxable income.
To qualify for the most advantageous tax deductions, one must utilize a Schedule A to itemize expenses. Certain medical expenses, real estate taxes, mortgage interest, and charitable contributions may be deducted on this form.
However, since the Tax Cuts and Jobs Act of 2017 nearly doubled the standard deduction, which is a fixed amount rather than an itemized deduction, fewer individuals now itemize. The standard deduction is accessible to the vast majority of non-dependent taxpayers. It is $13,850 for the majority of single taxpayers under the age of 65 and $27,700 for the majority of married couples under the age of 65 who file a joint return for tax year 2023.
There are still deductions that can be claimed despite not itemizing on your return, even though the standard deduction is more financially advantageous for the majority of people today. The list below includes a few deductions that anyone can claim, regardless of itemizing status.
1. Contributions to traditional IRAs
Up to an annual maximum set by the IRS, contributions to an individual retirement account (IRA), also known as an IRA, are deductible.
IRA contributions are capped at $6,500 for the 2023 tax year, which concludes in the spring of 2024. Individuals aged 50 and older are eligible to contribute an additional $7,500. These figures will be $7,000 and $8,000, respectively, for the tax year 2024.
Deductible contributions are limited to those made to a traditional IRA. Roth IRAs are not tax deductible because they offer a distinct set of tax advantages.
2. Contributions to HSAs
The contributions to a health savings account (HSA) can be deducted if the policyholder possesses a qualifying high-deductible health insurance plan. Those with self-only coverage are permitted to contribute a maximum of $3,850 to an HSA for the 2023 tax year, while those with family coverage are subject to a contribution limit of $7,300. Those limits increase to $4,150 for self-only policyholders and $8,300 for family policyholders in the 2024 tax year.
Those who are 55 or older are eligible to make an additional $1,000 in catch-up contributions in both years.
3. Archer MSA involvement
Archer medical savings accounts, which are comparable to health savings accounts, permit small business employees and self-employed individuals to contribute tax-free funds toward qualified health care expenses.
To establish an Archer MSA, you must have a qualified high-deductible health insurance plan; contributions of up to 75% of your insurance deductible are tax deductible. In the case of a self-only plan, deductible contributions are limited to 65% of the plan deductible.
Additionally, contributions to an Archer MSA are limited to the annual income of the employer who provided the insurance coverage.
4. Repercussions for premature withdrawals of savings
Certain investments, including certificates of deposit (CDs), necessitate maintaining funds in an account for a specified duration. Failure to do so may result in the imposition of an early withdrawal penalty. The IRS permits individuals to deduct penalties that are disclosed on Forms 1099-INT or 1099-OID.
Note, however, that penalties on early withdrawals from retirement accounts (such as IRAs) are not subject to this deduction.
5. Contributions to small-business retirement plans
Self-employed individuals and proprietors of small businesses are eligible for additional retirement fund deductions. These encompass the following contributions:
Individual SEP-IRA SIMPLE-IRA 401(k)
Consult a financial expert for further details regarding eligibility requirements and contribution deductible limits for these plans.
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6. Interest on student loans
Depending on your income, you might qualify for a tax deduction for the interest on your student loans. Those meeting income requirements are presently eligible to deduct a maximum of $2,500 in interest.
For single taxpayers, the deduction for student loan interest commences to diminish as soon as their modified adjusted gross income reaches $75,000. Those with annual incomes exceeding $90,000 are exempt from this provision. The deduction for married couples filing jointly starts to decrease as their income reaches $155,000 and is completely eliminated at $185,000.
7. Expenses for educators
Due to professional obligations, educators at the secondary or elementary level are permitted to deduct a maximum of $300 in out-of-pocket expenses. These expenses may consist, among other things, of computers, classroom supplies, and courses in professional development. Additionally, protective equipment such as face shields and sanitizer is eligible for the deduction.
8. Paying alimony
It is possible that alimony payments made to a former spouse qualify as deductibles from one’s income. This deduction, however, does not apply to all individuals. The IRS states:
The IRS does not allow deductions for alimony or separate maintenance in divorce or separation agreements executed after 2018 or before 2019 but later modified to include a clause stating that the modification is subject to the repeal of the deduction for alimony payments. Alimony and separate maintenance payments received in accordance with the terms of this agreement are not taxable as part of your gross income.
9. Taxes on self-employment
Taxes collected under the Federal Insurance Contributions Act (FICA) finance both Medicare and Social Security. Self-employed individuals must personally remit the entire 15.3% tax, while employees and employers share in the payment of these taxes.
The IRS fortunately permits self-employed individuals to deduct fifty percent of that amount from their income taxes. Determine the tax liability and deduction using Schedule SE or your preferred tax software.
10. Premiums for self-employed health insurance
Additionally, self-employed individuals are eligible to deduct health insurance premiums for themselves, their spouse, and their children.
The 1040 and 1040-SR instructions detail eligibility and maximum deduction amounts for the Self-Employed Health Insurance Deduction, as per regulations on Page 91.
11. Moving expenditures of personnel on active duty
Members of the United States armed forces who relocate due to a permanent change of station or military order can deduct any unreimbursed relocation expenses that they, their spouse, or their dependents incur.
Among the “reasonable” expenses that the IRS deducts are lodging and storage while traveling, but not meals.
12. Appropriate charitable contributions
Those who designate retirement funds for qualified charitable distributions may be exempt from income taxation. Those aged 70 and above may find qualified charitable distributions (QCDs) the most advantageous.
Individuals with a traditional retirement account (e.g., 401(k) or IRA) must make required minimum distributions (RMDs) by the age of 73. The RMD calculation is based on the individual’s age and fund balance, and these factors can result in a significant amount. RMDs are liable for federal income tax, which increases the likelihood that they will incur a substantial tax liability. Neglecting to execute the withdrawal is additionally detrimental, as the IRS will levy a 25% penalty on the RMD amount.
Sending the distribution directly to a qualified charity, however, exempts retirees from paying tax on RMDs. Additionally, the QCD will prevent the RMD from increasing a taxpayer’s adjusted total income, which could restrict the deduction of other expenses.
