Itemizing is an excellent way for taxpayers to lower their tax liabilities. It enables them to deduct certain expenses from their adjusted gross income to maximize their tax benefits. While itemizing is beneficial, it isn’t the only way to reduce your taxable income.
You can adjust your gross income using ‘above the line’ deductions. They don’t require itemizing yet deliver similar benefits. Let’s explore 12 tax deductions you can claim in your returns without itemizing.
Educator Expenses
You can claim educator expenses if you’re an eligible educator, like a teacher, instructor, principal, or counselor having served at least 900 hours a school year.
You can claim up to $300 in your return filing as a deduction if you were not reimbursed for business expenses. This limit is $600 for married filing jointly wherein both spouses are eligible educators. Deductions can only be claimed for eligible expenses like books, computer equipment, supplies, professional development courses, supplementary materials used in the classroom, etc.
Student Loan Interest
Individuals paying off their own or their children’s student loans can claim a deduction of the lesser of $2,500 or the interest amount paid during the year. This deduction will gradually be reduced and eliminated by phaseout once the filer’s adjusted gross income reaches the annual limit for filing status. You can also claim this deduction if you’re paying off your spouse’s student loan.
Health Saving Account (HSA) Contributions
Eligible individuals can claim tax deductions for contributions made to health savings accounts without itemizing. Since there is a limit on contributions to HSA, the deductions are made accordingly. For example, your contribution will be capped at $4,150 if you had self-only HDHP coverage in 2024. However, the contribution limit will increase to $8,300 if you have family HDHP coverage. Eligible individuals aged 55 and older can enjoy an additional contribution limit of $1,000. Since there are multiple variables involved in HSA contributions, consider consulting a professional tax consultant for personalized guidance.
Jury Duty Payments
While all payments received from an employer or court are taxable, individuals can use jury duty payments as tax deductions without itemizing if they turn over the payment. If any court reimburses jurors for transportation, parking, meals, and other expenses, they won’t be considered taxable income because they’re mere reimbursements.
Individual Retirement Account (IRA) Contributions
Roth IRA contributions aren’t deductible, but you can claim a full deduction for traditional IRA contributions if you and your spouse (if you’re married) are not covered by any retirement plan at work. If you’re covered under a retirement plan at work, then your deduction may be limited. For 2024, the total contribution limit was capped at $7,000 for individuals below 50. Those 50 years or older enjoyed a higher contribution limit of $8,000.
Early Withdrawal Penalties
Some individuals with investments in Certificate of Deposit (CD) or other deferred interest accounts withdraw their money before maturity. This early withdrawal attracts a penalty, which can be deducted from tax returns without itemizing. You will receive complete details of your interest and penalty in Form 1099-INT shared by the financial institution.
Self-Employed Retirement Contributions
Self-employed individuals can claim deductions on their retirement contributions made in SEP-IRAs, SIMPLE IRAs, and solo 401(k) accounts. These are the best investments because individuals can claim these deductions to lower their current tax liability and enjoy tax-deferred investment gains later. While the contribution limit varies by plan type, you cannot contribute more than your earnings. Individuals can only contribute up to $23,500 in deferred salary to solo 401(k) and up to $70,000 for self-employed 401(k).
Alimony Payments
Individuals paying alimony to their ex-spouse can write off their full alimony payment as a deduction if the court finalized the divorce before 2018. Alimony is generally shown as income in the recipient spouse’s account, whereas the payer spouse can claim deductions for the paid alimony for divorce agreements executed before 2019.
Home Office Deduction
If you’re a freelancer, artist, home baker, or any self-employed individual who uses their home or part of their home to run their business, you can claim home office deductions to lower your tax liability. You can deduct the business percentage of your rent, homeowner’s insurance, utilities, deductible mortgage interest, etc. For instance, if your business occupies 15% of your home, then 15% of your annual electricity bill becomes tax deductible.
Business Use of Car
Individuals who use their car for only business purposes can claim the entire ownership cost and operational costs (subject to limitations) in tax returns. However, if you use the vehicle for personal and professional purposes, ensure you only claim a deduction for the costs associated with business usage. You can calculate the deductible amount using the actual expense or standard mileage rate method. Using the standard mileage rate method is easier, so you may consider it for convenience.
Dues and Publication Deduction
If you invest money in specialized magazines, journals, books, fees for professional membership organizations, etc., directly related to your trade or business, you can claim these investments as deductions. You cannot claim any random resource for this deduction. For example, Nation’s Restaurant News subscription becomes eligible for deduction if the tax filer is a restaurant owner. Buying a daily newspaper covering food and restaurants may not qualify for the deduction. Coming to memberships, the IRS considers genuine investments like memberships for trade associations, business leagues, real estate boards, etc.
Self-Employment Tax Deduction
Self-employed individuals can deduct their employer-equivalent portion of self-employment tax to offset their additional tax burden. Generally, employers and employees pay 7.65% each towards self-employment tax. Since self-employed pay for both portions, the IRS treats the employer portion as a business expense, making it tax deductible.
