Can’t itemize? There are still tax breaks for you.
A common misconception in tax filing has been that if you use the standard deduction versus itemizing your deductions you have few additional benefits available to reduce your tax bill. This is often not the case.
Standard or Itemize?
Every taxpayer can take the standard deduction to reduce their income prior to applying exemptions. However, if your deductions are going to exceed the standard amount you may choose to itemize your deductions. The primary reason someone itemizes deductions is generally due to home ownership since mortgage interest and property taxes are deductible and are generally high enough to justify itemizing.
Common sources of itemized deductions are: mortgage interest, property taxes, charitable giving, and high medical expenses.
What is Available
So what opportunities are available to reduce your taxable income if you use the standard deduction? Here are some of the most common:
- IRA Contributions (up to $7,000, or $8,000 if age 50 or over)
- Student Loan Interest (up to $2,500)
- Alimony Paid (if divorce or separation agreement is effective prior to 1/1/2019)
- Health Savings Accounts (if you qualify)
- Donating appreciated long-term capital gain stock.
- Self-employed health insurance premiums
- One-half of self-employment tax
- Numerous education incentives such as Savings Bond Interest, Coverdell accounts, American Opportunity (Hope) Credit and Lifetime Learning Credit
- Plus numerous other credits including the Earned Income Credit, Child & Dependent Care Credit, Child Tax Credit, and Elderly or Disabled Credit.
Income limitations often apply to these tax reduction opportunities, but for those who qualify, the tax savings can be significant. This list is by no means complete. What should be remembered is to rely on a complete review of your situation prior to jumping to the conclusion that tax breaks are just for someone else. That someone else might just be you, the standard deduction taxpayer.