Standard Deduction vs. Itemizing
The standard deduction is available to every taxpayer. In 2020, it will be $12,000 for single and married filing single, $18,350 for head of household, and $24,400 for married filing jointly and qualified widow(er)s. You subtract this amount from your income before the tax is applied.
So let’s say your income is $50,000 and you are a single filer, you deduct $12,000. Your taxable income is reduced to $38,000 at this point.
Other people choose to itemize because individual deductions are greater than the standard deduction. Common itemized deductions include mortgage interest, charitable donations, medical expenses, and property taxes.
Not Itemizing? There Are Still Tax Breaks Available
If you choose the standard deduction, there are still opportunities to reduce your taxable income. Do any of the following apply to you?
- IRA Contributions (up to $5,500 or $6,500 if age 50 or over)
- Student Loan Interest (up to $2,500)
- Educator Expense Deduction of $250
- Alimony Paid
- Qualifying Health Savings Accounts
- Job-Related Moving Expenses
- Self-Employed Health Insurance Premiums
- ½ of Self-Employment Tax
- Education incentives Including; Savings Bond Interest, Coverdell accounts, American Opportunity Credit and Lifetime Learning Credit
- Credits including: Earned Income Credit, Dependent Care, Child Tax Credit, Retirement Savings, and Elderly Credit
Many of these tax reduction opportunities are tied to income limitations; if you qualify, the savings can be significant. The list above is far from complete: come and see the professionals at Faw & Associates to see how you can claim the standard deduction and lower your taxable income further with deductions. We’ll conduct a complete review of your situation and uncover the deductions for non-itemizers that apply to you.