Tip Category: Deductions
Weekly Tax Tip: Can't Itemize? There are Still Tax Breaks for You
A common misconception in tax filing has been that if you use the standard deduction versus itemizing your deductions you 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 prior to applying exemptions. 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.
Common sources of itemized deductions are:
mortgage interest
property taxes
charitable giving
and high medical expenses
What is Available
So what opportunities are available to reduce your taxable income if you use the standard deduction? Here are some of the most common:
IRA Contributions (up to $7,000, or $8,000 if age 50 or over)
Student Loan Interest (up to $2,500)
Alimony Paid (if divorce or separation agreement is effective prior to 1/1/2019)
Health Savings Accounts (if you qualify)
Donating appreciated long-term capital gain stock.
Self-employed health insurance premiums
One-half of self-employment tax
Numerous education incentives such as Savings Bond Interest, Coverdell accounts, American Opportunity (Hope) Credit and Lifetime Learning Credit
Plus numerous other credits including the Earned Income Credit, Child & Dependent Care Credit, Child Tax Credit, and Elderly or Disabled 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.
When they are filing their taxes, taxpayers need to choose between taking the standard deduction and itemizing their deductions. If you choose the standard deduction, you will not be able to claim itemized deductions. However, most people take the standard deduction because the Tax Cuts and Jobs Act, which went into effect in 2018, greatly increased the size of the standard deduction. Unless a taxpayer can claim many itemized deductions, they will receive a greater benefit from claiming the standard deduction.
Certain deductions may be helpful to people who are pursuing or who have pursued higher education. If your adjusted gross income does not reach a certain threshold, you can deduct a certain amount of the interest on your student loans. You also may be able to deduct a certain amount in tuition and fees for higher education.
This deduction also applies to higher education for your spouse or a dependent. If you take either the American Opportunity tax credit or the Lifetime Learning tax credit, though, you cannot use this deduction.
Contact us and let our skilled OAHU Tax Experts offer their well-rounded tax advice and tailored tax solutions to help you file accurate tax reports. Diamond Head Tax Group is Honolulu's trusted source of tax filing services serving Waianae, Honolulu, Kapolei, Oahu and surrounding areas.
Deductions Weekly Tax Tip from Diamond Head Tax Group
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