Tax Deductions You Can Take Without Itemizing

Most taxpayers think they have to itemize their deductions to claim them on their tax return. However, that is not entirely true! There are certain deductions that can be claimed while still using the standard deduction. Here is a list of those tax deductions you can take without itemizing:

Charitable Contributions

For 2020, non-itemizers can deduct up to $300 of cash contributions above-the-line. The $300 limits apply both to single and married taxpayers. Donations to donor-advised funds and private foundations aren’t eligible for the above-the-line deduction (2020 and 2021). The term “above-the-line” is a shorthand way of saying that the deduction reduces gross income when figuring adjusted gross income (AGI).

For 2021, non-itemizers filing a joint return can deduct up to $600 of cash contributions, while taxpayers using the other filing statuses continue to be limited to $300. Unlike the 2020 version of this deduction, which is an above-the-line deduction, the 2021 deduction is claimed after the AGI is determined.

Educator Expenses

A qualified educator can annually deduct above-the-line to a maximum of $250 of qualified unreimbursed classroom expenses. These expenses include:

Note that a qualified educator is generally considered a kindergarten through grade 12 teacher, instructor, counselor, principal or aide and works in a school at least 900 hours during the school year.

Health Savings Account Contributions

Contributions to Health Savings Accounts (HSA) are also an above-the-line deduction. HSAs can only be established by eligible individuals who are covered by high-deductible health plans and generally not covered under any other health plan. There are statutory limits to the amounts that can be contributed to an HSA. Subject to statutory limits, eligible individuals may make tax deductible contributions to HSAs, and employers as well as other persons (e.g., family members) may contribute on behalf of eligible individuals. Since an employer’s contributions to an employee’s HSA are excludable from the employee’s income, the employee can’t also claim a deduction for those contributions.

Amounts in HSAs accumulate tax-free, and distributions are tax-free if used to pay for or reimburse qualified medical expenses. Some individuals use HSAs as supplemental retirement plans when they are maxed out on other available tax beneficial retirement plans.  

Student Loan Interest Deduction

A taxpayer can deduct up to $2,500 above-the-line of interest paid by the taxpayer on a student loan on behalf of the taxpayer, spouse or dependents. The deduction is phased out for higher-income taxpayers.

Tuition and Fees Deduction

This above-the-line deduction is allowed for qualified tuition and related expenses only to the extent the expenses are in connection with enrollment at an institution of higher education during that tax year. The expenses are limited to $2,000 or $4,000, depending upon the taxpayer’s AGI. The same expenses can’t be used for this deduction and the American Opportunity Credit or the Lifetime Learning Credit, and 2020 is the last year for this deduction.   

Deductible Part of Self-Employment Tax

A self-employed taxpayer can deduct one-half of the self-employment tax computed on Schedule SE for the year.

Self-Employed Health Insurance Deduction

A self-employed individual (or a partner or a more-than-2%-shareholder of an S corporation) may be able to deduct 100% of the amount paid during the tax year for medical insurance on behalf of themselves, their spouse and dependents as an above-the-line expense. The deduction is limited to the amount of the individual’s net SE income. Additionally, the individual, spouse or dependent cannot participate in an employer subsidized health plan.

Alimony Payments May Be Deductible

For divorce or separation instruments entered into before 2019 that haven’t been modified to include the tax law change effective for post-2018 instruments, an individual may be able to claim an above-the-line deduction for alimony payments made during the year, if certain requirements are met. Effective for divorce or separation instruments entered into after December 31, 2018, alimony payments aren’t deductible by the payer and aren’t taxable to the recipient.

Business Pass-Through Deduction

As part of the 2018 tax reform, certain businesses are allowed a deduction that is generally equal to 20% of their qualified business income (QBI). This deduction is most commonly known as a pass-through income deduction because it applies where the business income passes through to the individual’s, partner’s, or stockholder’s 1040 income tax return. While not an above-the-line deduction because it doesn’t reduce gross income, this pass-through deduction, like the standard and itemized deductions, is subtracted from AGI to figure taxable income.

Retirement Plan Deductions

Contributions to traditional IRAs, self-employed SEPs, SIMPLEs, and other qualified retirement plans are above-the-line deductions. However, the deduction for some of these contributions for an employee won’t appear as a line item on the tax return because the tax benefit has already been applied by reducing their taxable wages. The most common example of this treatment is 401(k) plan contributions in which the employee designates a percentage of their wage that is contributed to the plan and their gross wages are reduced by the contribution amount, leaving the balance of the wages as taxable.

If you have questions about tax deductions you can take without itemizing or how any of these deductions might apply to your tax return, please contact Cray Kaiser today. We’re here to help!

Please note that this blog is based on tax laws effective in March 2021, and may not contain later amendments. Please contact Cray Kaiser for most recent information.

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