When you file a federal income tax return, you have the choice between taking the standard deduction and itemizing your deductions. But after the 2017 Trump tax changes, which nearly doubled the standard deduction, many taxpayers who lowered their tax bill by itemizing deductions could no longer take the same tax breaks. Because of all the tax code changes, many people work with a financial advisor to optimize a tax strategy for their financial goals. Let’s take a look at deductions that you can take without itemizing.
Making Adjustments to Your Income
You can reduce your taxable income by itemizing your deductions. This means that you list expenses that will later be subtracted from your adjusted gross income (AGI). If your expenses throughout the tax year were more than the value of the standard deduction, itemizing is a useful filing strategy to maximize your tax benefits.
However, itemizing isn’t the only way to reduce your income. You can make “adjustments” to your gross income, which are called “above the line” deductions. These are basically extra deductions that reduce the amount of income you have to pay tax on. They’re literally above line 7 on your standard income tax return Form 1040 where you have to write in your AGI. Anyone can claim them, and you don’t need to itemize. Here’s a breakdown of each:
1. Educator Expenses
For your 2022 taxes, which you will file by April 18, 2023, teachers, counselors and principals who aren’t reimbursed for buying supplies can deduct up to $250. If they’re married to another educator and they’re filing jointly, the limit rises to $500. Qualified expenses include books, supplies, computer equipment and software licensing or services, and any other teaching material that you had to buy during the tax year for the development of a course and in the classroom.
To claim the above-the-line deduction for educator expenses, you have to put in at least 900 hours of work in a given tax year. If you’ve taken money from a Coverdell savings account without paying taxes or you’ve received non-taxable funds from a tuition program, you’re required to subtract those amounts from the total number of educator expenses.
To deduct your educator expenses, you will need to fill out Schedule 1. Line 23 of this form allows you to add your educator expenses. Then you can use this amount to calculate your AGI on your 1040 (using line 6 and line 7).
2. Student Loan Interest
If you are paying off your own student loans or your child’s loans, you can get a tax break for up to $2,500 of paid interest. There are some important income limits to know, though. In tax year 2022, the tax break for single filers will completely phase out when their modified adjusted gross income (MAGI) is higher than $70,000, and $140,000 for married couples filing jointly.
Student loan interest counts as an above-the-line deduction on Schedule 1 (line 33) of Form 1040. Note that because figures are adjusted annually for inflation, you should consult the IRS when 2021 tax benefits are updated.
3. HSA Contributions
Taxpayers with a health savings account can get a tax break for contributions they’ve made using after-tax dollars. The catch is that these funds have to pay for qualified health expenses.
Single folks under the age of 55 can deduct up to $3,600 in 2021 and $3,650 in 2022. Those with family coverage can deduct up to $7,200 in 2021 and $7,300 in 2022. Account holders who are age 55 and over get an additional $1,000.
4. IRA Contributions
Your ability to qualify for the traditional IRA deduction depends on your income level. It’s also based on whether you or your spouse has an employer-sponsored retirement plan.
For the 2022 tax year (tax returns due April 2023), single tax filers and heads of household with a 401(k) or a similar account at work can take the full deduction if their MAGI is under $68,000, and it phases out completely above $78,000.
Once you turn 72, you’re no longer eligible for the IRA deduction. And there’s no deduction for Roth IRA contributions. It’s a good idea to look over the contribution and income limits for IRAs.
5. Self-Employed Retirement Contributions
If you are work for yourself, you can deduct contributions from self-directed retirement plans like SEP-IRAs or SIMPLE IRAs.
The IRS says that employers can deduct up to 25% of an employee’s salary or $61,000 (whichever is less) for SEP-IRA contributions in 2022. That threshold rises to $66,000 in 2023. And, if you’re the sole proprietor or partner of a business, you could deduct your own salary reduction contributions and your own matching or non-elective contributions.
6. Early Withdrawal Penalties
When you withdraw earnings from a certificate of deposit (or another time-deposit account) before it matures, your bank will charge you a fee. Fortunately, you can deduct the full amount of the penalty on Form 1040. You will just need to attach Schedule 1.
7. Alimony Payments
You might be able to write off the alimony payments you’ve made to an ex-spouse as long as your divorce agreement was finalized by the end of 2018. You could lose this deduction if changes to your divorce agreement were made after 2018.
Note that if you get alimony payments from a finalized divorced before 2019 could qualify as income, and as the receiving spouse you will need to report them on your Form 1040. Child support payments, however, are not tax-deductible.
8. Certain Business Expenses
For the most part, employees have to itemize their business expenses using a separate form (Schedule A). But some workers – like performing artists and certain government officials – can simply include them on their income tax returns (line 24 of Schedule 1).
9. Jury Duty Payments
Besides the above-the-line deductions, there are other tax breaks (called write-in adjustments) that you can write in and claim without itemizing. Whatever you earn from jury duty, for instance, counts as a write-in adjustment if you gave that payment to your employer, because the employer paid your salary while you were away on jury duty.
Bottom Line
When you file your federal return, you have to choose between taking the standard deduction or itemizing. The 2017 Trump tax bill nearly doubled the standard deduction, which now prevents taxpayers from itemizing some deductions. You should review the new tax code changes, especially if you usually itemize deductions. (We also took a look at who should itemize under the new tax plan.) Some deductions can still be claimed without itemizing.
Tips for Filing Your Taxes
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A financial advisor can help you build a tax plan. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors wh0 serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
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A tax filing service can help you maneuver through all the tax code changes. SmartAsset’s annual roundup of the best tax filing software will get you through this tax season as painlessly as possible.
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If you want to plan ahead, use SmartAsset’s tax return calculator. It can help you figure out whether you’ll get a tax refund or have to pay a tax bill.
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