Deductions reduce your taxable income, so it’s in your best interest to claim as much as possible when filing your tax return.
To get the most lucrative tax deductions, you must itemize expenses using a Schedule A. This form allows you to deduct mortgage interest, property taxes, charitable donations and certain medical expenses.
However, the Tax Cuts and Jobs Act of 2017 nearly doubled the standard deduction, meaning fewer people are choosing to itemize now. The standard deduction is available for almost all non-dependent taxpayers and, for 2020, is set at $ 12,400 for single taxpayers and $ 24,800 for married couples filing jointly.
While the standard deduction makes more financial sense for most people these days, there are still deductions you can claim even if you don’t detail your return. Read on for some of the deductions anyone can claim.
1. Certain charitable donations
Normally, you will need to itemize the deductions to amortize charitable contributions. However, the CARES (Coronavirus Aid, Relief and Economic Security) law included a provision allowing all taxpayers to claim a deduction of $ 300 for charitable donations of money made in 2020.
A bill passed late last year extended that deduction until 2021 and increased it to $ 600 for married couples filing jointly, while keeping it at $ 300 for single filers.
2. Traditional IRA contributions
If you have an individual retirement account, also called an IRA, you can deduct contributions up to an annual limit set by the IRS. For the 2020 tax year – the one for which your tax return is due this spring – workers under 50 can contribute up to $ 6,000 to an IRA while those 50 and over can contribute up to $ 6,000. ‘to $ 7,000.
Only contributions to a traditional IRA are tax deductible. Roth IRAs are not eligible for a deduction as they come with a different set of tax benefits.
3. HSA contributions
If you have a qualifying high-deductible health insurance plan, you can open a Health Savings Account (HSA) and deduct your contributions. For the 2020 tax year, people with individual coverage could contribute up to $ 3,550 to an HSA, while those with family coverage had a contribution limit of $ 7,100.
People 55 and over can make an additional $ 1,000 in deductible contributions.
4. Penalties for early withdrawal of savings
Some investments, such as certificates of deposit (CDs), require that you leave money in an account for a certain period of time. If you don’t, you could be hit with an early withdrawal penalty. Fortunately, the IRS allows people to deduce the penalties reported on the 1099-INT or 1099-OID forms.
While this deduction does not apply to early withdrawals from retirement accounts such as IRAs, the CARES Act waives the early withdrawal penalty of up to $ 100,000 levied on retirement funds in 2020 by individuals. affected by the COVID-19 pandemic.
5. Student loan interest
Depending on your income, you may be able to deduct the interest on your student loan from your taxes. To see if you are eligible, go to the IRS website and complete the Student Loan Deduction Interest Worksheet.
6. Educator’s expenses
Educators working at the primary or secondary level can deduct up to $ 250 out-of-pocket expenses related to their work. These costs may include, but are not limited to, computers, school supplies and professional development courses. For 2020, the deduction also includes protective gear such as face masks, disinfectants and air purifiers.
7. Support payments paid
If you are paying support to a former spouse, you can deduct these payments of your income. However, this deduction does not apply to everyone. As the IRS says:
âYou cannot deduct spousal support or separate maintenance payments made under a divorce or separation agreement (1) executed after 2018 or (2) executed before 2019 but subsequently amended if the amendment expressly states that the repeal of the deduction for support payments applies to the amendment. Alimony and separate maintenance payments that you receive under such an agreement are not included in your gross income.
8. Taxes on self-employment
Federal Insurance Contributions Act (FICA) taxes fund both Social Security and Medicare programs. While employees share these taxes with their employers, the self-employed must pay the full 15.3% tax themselves.
9. Health insurance contributions for self-employed workers
The self-employed can also deduct the premiums paid for health insurance coverage for themselves, their spouse and their children.
As with other deductions, there are rules about who qualifies and how much you can deduct. The Self-Employed Medicare Deduction Worksheet on page 89 of the 1040 and 1040-SR instructions can help you determine how much you can claim.
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