Seven Tax Deductions You Can Take Even If You Don't Itemize

This year, filing your returns may prove a little more complex than in years past due to the many changes brought about by the Tax Cuts and Jobs Act of 2017 (TCJA). Consider starting a little earlier this year to make sure you understand which tax deductions and credits have been limited or eliminated and which adjustments to income you can still take, even if you don’t itemize. The sheer number of changes make a really strong case for working with a professional tax preparer or investing in tax preparation software from one of the leading providers, some of which offer one-on-one reviews and/or advice from credentialed tax professionals. If your adjusted gross income was $66,000 or less in 2018, you can access free tax software to prepare and e-fi­le your tax return thanks to a public–private partnership between the IRS and well-known tax software providers. Visit IRS.gov/FreeFile to learn more.

In addition to permanently reducing the corporate tax rate from 35% to 21%, changes under the TCJA mean that most individual taxpayers will also receive tax benefits, including lower marginal tax rates, and a reduction in the top tax rate for the wealthiest Americans from 39.6% down to 37%. However, all of the individual tax breaks are scheduled to expire at the end of 2025 unless Congress passes legislation to extend them. In addition, Forms 1040EZ and 1040A have been eliminated altogether. All taxpayers are now required to file using Form 1040.



Should you itemize or take the standard deduction? 

This is among the most common questions taxpayers are asking as they prepare to file their 2018 returns. The new tax law increased the standard deduction to $12,000 for individuals and $24,000 a year for married couples filing jointly. This dramatically changes things for the majority of the population. Let’s say you can deduct $8,000 for mortgage interest, $8,000 for state and local taxes, and $6,000 for charitable giving. That’s a total of $22,000, or $2,000 lower than the new standard deduction. In that case it makes sense to take the standard deduction instead of itemizing.
The significant increase in the standard deduction has also substantially raised the income required for filing a tax return. As a result, a larger number of taxpayers may find they don’t need to file a return at all. For individual filing thresholds (and the many exceptions to the rule), visit IRS.gov.

 Most high net worth households, especially those choosing to “bunch” charitable deductions into a given tax year, will want to continue to itemize. Until 2017, itemized deductions were phased out for high income taxpayers. Under the new tax law, the phaseout has been eliminated. And since most of the deductions available to self-employed business owners, such as business expenses, retirement plan contributions, a portion of self-employment taxes and healthcare premiums remain intact under the new tax law, it makes sense for those individuals to itemize as well. In addition, certain business owners may be able to deduct up to 20% of qualified business income from their qualified trade or business, plus 20% of their qualified real estate investment trust dividends, and qualified publicly traded partnership income.

While the new tax law is lengthy and complex, with many deductions limited or eliminated altogether, certain “above the line” deductions or adjustments to income are still available to taxpayers whether you itemize or take the standard deduction when filing your 2018 tax return, including the following:

1. Traditional IRAs. If you or your spouse is eligible to contribute to a traditional individual retirement account (IRA)you can trim your tax bill up to the amount of your contribution. IRA contribution limits for tax-year 2018 are $5,500 ($6,500 if you’re 50 or older) but must be made no later than April 15, 2019. If you or your spouse are covered by a retirement plan at work, the amount you may deduct may be limited. Consult your tax preparer or IRS.gov for more on IRA deduction limits.
2. If you’re funding a health savings account (HSA) in conjunction with a high-deductible health insurance plan, you can deduct contributions to your HSA, assuming you made them with after-tax money. If you contributed to the HSA through payroll deduction on the job, the deduction is not allowed as it would result in double-dipping.
3. If you paid an early withdrawal penalty on a bank certificate of deposit, you can deduct the full fee as an adjustment to income.
4. Student-loan interest. You may deduct up to $2,500 in student loan interest for you, your spouse or a dependent on your 2018 return if your modified adjusted gross income is less than $65,000 (single taxpayers) or $135,000 (married filing jointly). The deduction is phased out above those levels until it disappears completely for single taxpayers earning more than $80,000 and married couples earning more than $165,000. 
5. The Educator Expense Deduction allows K-12 educators to write off up to $250 each year for education-related supplies and expenses (receipts are required) if they log at least 900 hours a year on the job. The deduction does not apply to home schoolers.
6. Alimony paid to a former spouse is deductible for divorce agreements signed before December 31, 2018. Monetary payments must be clearly spelled out in your divorce agreement and you’re required to report your ex-spouse’s Social Security number, so the IRS can verify that your former spouse reports the same amount as taxable income. (Child support is not deductible under the new tax law.)
7. Moving expenses. The deduction for job-related moving expenses was eliminated with the exception of applicable expenses for eligible military personnel changing duty stations.