A common misconception in tax filing has been that if you use the Standard Deduction versus itemizing your deductions you now 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. 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. But with higher Standard Deductions, fewer taxpayers are able to itemize.
Common sources of itemized deductions are: mortgage interest, property taxes, charitable giving, high medical expenses, and other miscellaneous deductions.
What is Available
So what opportunities to reduce your taxable income are available if you use the Standard Deduction? Here are some of the most common:
- IRA Contributions (up to $6,000 or $7,000 if age 50 or over)
- Student Loan Interest ( up to $2,500)
- Educator Expense Deduction (up to $250)
- Alimony Paid (for divorce decrees prior to 2019)
- Health Savings Accounts (if you qualify)
- Self-employed health insurance premiums
- ½ of self-employment tax
- Numerous education incentives like; Savings Bond Interest, Coverdell accounts, American Opportunity Credit and Lifetime Learning Credit
- Plus numerous credits including; Earned Income Credit, Dependent Care Credit, Child Tax Credit, Retirement Savings, and Elderly 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.