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Tax deductions are great for your wallet, reducing your taxes owed by bringing your taxable income down.
Deductions can be grouped into three categories: the standard deduction, itemized deductions and above-the-line deductions.
What is the standard deduction?
The standard deduction is a fixed, base-level amount based on your filing status and income level. It’s super easy to claim, because you simply opt for the automatic tax break when you file—plus, it’s pretty significant. For example, single taxpayers in 2020 would get $12,400 as a standard deduction (married couples get $24,800).
If your tax picture is pretty simple, and you don’t have a lot of special circ*mstances that would make it more beneficial to add up and itemize individual deductions (more on that below), you’ll probably take the standard deduction.
What are itemized deductions?
While the standard deduction for your filing status and income covers your bases, some filers will benefit more by claiming itemize deductions on Schedule A.
Itemizing deductions means that you list out all your qualifying deductions instead of taking the standard deduction for your filing status. It takes more time to itemize, but it can definitely be worth it if the sum of your specific deductions is more than the standard deduction.
Here, for example, are some of the more common itemized deductions:
- Personal property taxes – Taxes you pay each year on your vehicle and home, for example.
- State and local income tax (or sales tax)* – You choose, income tax or sales tax; the sales tax deduction comes in handy for those who live in a state that doesn’t tax income.
- Mortgage expense – This can include mortgage interest and mortgage insurance premiums.
- Gifts to charity – If you can itemize, you can deduct the fair market value of the spare TV you donated to the animal shelter’s thrift store, as well as cash donations to a church or other qualifying 501(c)(3) nonprofit organization.
- Casualty losses – Any damage or loss of uninsured personal property due to a federal declared disaster can be claimed on Schedule A.
- Medical and dental expenses – A deduction is available for unreimbursed expenses above a certain percentage of your income.
* The state and local tax deduction is capped at $10,000 by the Tax Cuts and Jobs Act of 2017.
What are above-the-line deductions?
Finally, an above-the-line deduction is a sort of free-agent tax break. You can claim them regardless of whether you chose the standard deduction or itemized deductions, so they’re really just stand-alone adjustments with their own criteria. These deductions include items such as:
- Education expenses – This includes tuition and fees paid by students, and some qualifying expenses for teachers.
- Student loan interest – If you’re paying back student loans, you can deduct your interest payments from your taxable income.
- IRA contributions – If you have a qualified IRA, portions of the amount you contribute can be deducted from income.
- Self-employment tax – Self-employed workers can usually deduct half of their self-employment tax.
File with 1040.com for the best tax breaks without the math
When you file with 1040.com, we’ll simply ask you a few questions about your tax situation and make sure you get the best tax breaks—whether from the standard deduction, itemized deductions or above-the-line deductions.
You won’t have to calculate which type of deduction gives you the best deal. That’s our job, and we’ll get it done with our 100% accurate calculations.
Ready to file? So are we—just sign up or log in today to get started.
