Some taxpayers know right away whether they’ll be itemizing their deductions when it comes time to file, but for many, taking the standard deduction just makes more sense.While you can’t claim the standard deduction and itemize, there is a third option that can further reduce your tax burden.
You may qualify for one or more of several “above-the-line” deductions. These are adjustments to your income and can help keep more money in your bank account .
Here are 11 deductions you can take without having to itemize that you should start keeping track of now for next year's filing.
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1. Health Savings Account contributions
If you’re covered under a high-deductible health plan (HDHP) and fund a Health Savings Account (HSA), smart money move .
Withdrawals are tax-free, provided you use the money to pay for qualified medical expenses, and your after-tax contributions are deductible, so they lower your tax bill. If your contributions are deducted from your paycheck, they’re made with pre-tax dollars.
However you made your contributions, you need to enter them on Schedule 1, Line 13, and attach Form 8889 with your return. The maximum contribution for individual coverage is currently $3,650. For family coverage, it’s $7,300. If you’re 55 or over at any time in the year, you can contribute another $1,000.
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2. Educator expenses
Teachers, instructors, counselors, aides, and principals can deduct up to $300 of unreimbursed expenses in your tax filing. This can be a great way to lower your financial stress if you're a teacher.
If you’re married to another educator and you file jointly, you can deduct up to $600 for the same year. To claim the above-the-line deduction for educator expenses, you must have worked at least 900 hours in a school year at a school that provides elementary or secondary education.
If you’re an educator who qualifies for this deduction, you’ll need to submit Schedule 1 along with your Form 1040. You can enter this expense amount on Line 11.
3. Early withdrawal of savings penalty
Did you withdraw funds from a Certificate of Deposit (CD) or other time-deposit accounts before maturity and get hit with a bank penalty?
The good news is that you can deduct the full penalty amount on Form 1040. You’ll just need to attach Schedule 1. The amount can be added to Line 18.
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4. Moving expenses if you're an active duty service member
The deduction of certain moving expenses was suspended for nonmilitary taxpayers with the Tax Cuts and Jobs Act but still exists for certain servicemembers.
In order to qualify, you must be an active duty member of the military and move due to a permanent change of duty station — whether it’s a move to your first duty station, from one permanent post to another, or a move from your last duty station back home.
If you qualify, the unreimbursed moving expenses include moving your household items and traveling (including lodging but not meals) to your new home. You can deduct your unreimbursed moving expenses by entering them on Schedule 1, Line 14, and attaching Form 3903 to your tax return.
5. Business expenses
Members of the National Guard and Reserves qualified performing artists, fee-based state or local government officials, or employees with impairment-related work expenses can deduct certain business expenses from their taxes.
If you’re an Armed Forces reservist, you can deduct expenses for traveling 100 miles or more from home to perform your service. Fee-based state or local government officials and qualified performing arts can deduct job-related expenses.
Lastly, if you’re a disabled employee with impairment-related work expenses, you can deduct expenses for attendant care at your place of employment.If you qualify for any of these deductions, you’ll need to enter it on Schedule 1, Line 12. You'll also need to file Form 2106 and attach it to your Form 1040.
6. Self-employment tax
Self-employment taxes can be eye-opening if you’re filing your business tax forms for the first time. If you’re self-employed, you have to pay both the employer and the employee share of Social Security and Medicare taxes.
This is a whopping 15.3% of net self-employment income — 12.4% for Social Security and 2.9% for Medicare.
Luckily, you can deduct half (the employer-equivalent portion) of your self-employment tax. This won’t reduce how much self-employment tax you owe, but it can help provide some tax benefits. When you file, enter the deductible amount on Schedule 1, Line 15, and attach Schedule SE to your return.
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7. Self-employed retirement contributions
Self-employed individuals can reduce their tax bill even further by socking away money in a SEP-IRA or a SIMPLE IRA.
If you contribute to a SEP-IRA, you can deduct your contributions made to these accounts as an adjustment to income up to the lesser of $61,000 for 2022 or 25% of your compensation. The amount you can contribute to a SIMPLE IRA cannot exceed $14,000 in 2022.
You can enter these adjustments on Schedule 1, Line 16. If you’re self-employed and want higher contribution limits and a bigger tax advantage, a SEP-IRA over a Traditional IRA might be the way to go.
8. Self-employed health insurance deduction
If you’re self-employed, you may be eligible to deduct premiums you paid on a health insurance policy covering medical care, dental, and qualifying long-term care insurance coverage for yourself, your spouse, and your dependents.
This is an adjustment to income tax, so you claim it on Schedule 1, Line 17, and attach it to your Form 1040.
Pro tip: All self-employed individuals may find it difficult to track the success of their finances. If that's you then you may want to check up on your financial health every year before you file your taxes.
9. Alimony
You can write off the alimony payments you made to a spouse or ex-spouse as long as your divorce or separation agreement took place before Dec. 31, 2018.
This deduction isn't available for divorce or separation agreements executed after 2018. It also goes away if an agreement was made in 2018 or earlier but was later modified to state the payment is not deductible by the spouse who pays it or the payment is included in the income of the spouse who receives it.
When filing, you must provide your spouse’s Social Security number as well, or your deduction may be disallowed, and you may be charged a $50 penalty. This amount goes on Schedule 1, Line 19a, and is attached to Form 1040.
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10. Individual Retirement Account contributions
Contributing to a traditional Individual Retirement Account (IRA) gives you two wins: It boosts your retirement savings while trimming your tax bill.
The contribution limit is $6,500 ($7,500 if you're age 50 or older) for 2023. If you or your spouse are covered by a retirement plan at work, and your income exceeds certain levels, the deduction may be limited. If not, you can deduct every penny you contribute from your income on Schedule 1, Line 20.
You can make 2023 IRA contributions until April 15, 2024.
11. Student loan interest
Student loan interest is back. If you made payments toward your student loans, you can deduct up to $2,500 of interest you paid during the year. There are important taxable income and filing status limits to be aware of, though.
You can't qualify if you’re single with a modified adjusted gross income (MAGI) of more than $85,000. You also can't qualify if you're married and filing a joint return with a MAGI of $170,000 or more. Lastly, married couples filing separately can’t claim this deduction at all.
If you qualify for this deduction, you can enter it on Schedule 1, Line 21.
Bottom line
You don’t have to use itemized deductions to qualify for certain tax breaks. You can lower your tax bill if you qualify for any of these above-the-line deductions that you can take along with your standard deduction.
Keep this in mind as you’re preparing to file so you can ensure you receive the largest tax refund possible. Or if you owe money to the IRS, you can at least make sure you’re only paying the taxes you’re legally obligated to pay.
If the thought of filing your taxes and understanding how to manage your money makes you nervous, consider going to an accountant or taking a look at some of the best tax software to help you with preparation.
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