Claim These "Above-the-Line" Deductions on Your Tax Return (Even If You Don't Itemize)
If, like most people, you claim the standard deduction instead of itemized deductions on your return, there are still many other tax deductions available that could save you a lot of money.
Relatively few Americans itemize deductions on their tax return these days. You can claim the standard deduction or itemized deductions on your return—but not both. And, of course, you always want to pick the higher amount. However, since the standard deduction was nearly doubled by the 2017 tax reform law, it's now worth more than whatever itemized deductions are available for the vast majority of taxpayers.
That means most people aren't able to claim some very well-known tax breaks. No deduction for medical expenses. Zero tax savings for mortgage interest payments. Nothing for state and local taxes, either. If you claim the standard deduction, you can't claim any of these popular write-offs.
But there's a handful of other tax deductions that people taking the standard deduction can still claim on their tax return. Most of these so-called "above-the-line" deductions have no income limits, so anybody can claim them. Plus, in addition to the direct tax savings, your adjusted gross income (AGI) will be lower, which may allow you to claim other tax breaks that have AGI-based income limits. So, if you're claiming the standard deduction and want to lower your tax bill, keep reading to see if you qualify for any of these money-saving write-offs.
Charitable Contributions Deduction
In response to the coronavirus crisis, the CARES Act (enacted in March 2020) added a new above-the-line deduction to encourage more charitable giving. If you take the standard deduction on your 2020 tax return, you can deduct up to $300 for cash donations to charity you made during the year. (For 2020 joint returns, the amount allowed is still only $300.) Donations to donor advised funds and certain organizations that support charities are not deductible. Contributions carried forward from prior years and most cash contributions to charitable remainder trusts are excluded, too.
The deduction was extended to the 2021 tax year in December 2020 by the Taxpayer Certainty and Disaster Tax Relief Act—but with some changes. For instance, joint filers can claim up to $600 for cash donations on their 2021 return. The 2021 deduction won't reduce your AGI, either.
(Note that itemizers got some COVID-related tax relief for charitable contributions, too. The 60%-of-AGI limit on cash contributions was removed for the 2020 and 2021 tax years.)
Contributing to a traditional individual retirement account (IRA) is a win-win move that lets you boost your retirement savings and trim your tax bill at the same time (assuming you have earned income). For 2020, the contribution limit is $6,000 ($7,000 if you're 50 or older) or your taxable compensation for the year, whichever is less. Plus, if you (and your spouse, if you're married) don't have a retirement plan at work, every dollar of that can be knocked off your taxable income. If you're covered by a retirement plan at the office (or your spouse is) then that deduction might be limited if your income exceeds certain levels. You can make deductible IRA contributions for the 2020 tax year up until April 15, 2021.
For 2021, the contribution limits remain the same as they were for 2020. However, the income limits for the deduction are slightly higher. Most people have until April 18, 2022 (April 19 for residents of Maine and Massachusetts), to make deductible IRA contributions for the 2021 tax year.
Finally, starting in 2020, working seniors age 70½ and older can contribute to a traditional IRA. So, now you can continue to put away money in a traditional IRA if you work into your 70s and beyond.
Are you funding a health savings account (HSA) in conjunction with a high-deductible health plan? Smart move.
You get an above-the-line deduction for contributions to the HSA, assuming you made them with after-tax money. If you contribute pre-tax funds through payroll deduction on the job, there's no double-dipping—so no write off. In either case, you need to file a Form 8889 with your return. The maximum contribution for 2020 was $7,100 for family coverage and $3,550 if you're an individual (they're $7,200 and $3,600, respectively, for 2021). If you're 55 or over at any time in the year, you can contribute (and deduct) another $1,000.
Deductions for the Self-Employed
If you work for yourself, you have to pay both the employer and the employee share of Social Security and Medicare taxes—a whopping 15.3% of net self-employment income. But at least you get to write off half of what you pay as an adjustment to income. You can also deduct contributions to a self-directed retirement plan such as a SEP or SIMPLE plan (and those can cut big chunks off your income).
Also deductible as an adjustment to income: the cost of health insurance for the self-employed (and their families)—including Medicare premiums and supplemental Medicare (Medigap), up to your business' net income. You can't claim this deduction if you're eligible to be covered under a health plan subsidized either by your employer (if you have a job as well as your business) or your spouse's employer (if he or she has a job that offers family medical coverage).
Deductions for Educational Costs
If you paid college tuition for yourself, your spouse or a dependent in 2020, you may be able to deduct up to $4,000 in college tuition and fees. To qualify for the full deduction, your adjusted gross income must be $130,000 or less if married filing jointly ($65,000 or less if single). You can deduct up to $2,000 in tuition and fees if your joint income was $160,000 or less ($80,000 or less if single). There is no deduction if you earn more than that. The deduction is not available after 2020.
(Note that the tuition and fees deduction expired at the end of 2017; however, it was retroactively extended through 2020 in December 2019. You can file an amended return to claim it for the 2018 or 2019 tax year.)
In addition, up to $2,500 in student loan interest (for you, your spouse or a dependent) can be deducted on your tax return if your modified AGI is less than $70,000 if you're single or $140,000 if you're married and filing a joint return. The deduction is phased out above those levels, disappearing completely if you earn more than $85,000 if single or $170,000 if filing a joint return.
Deductions for Business Expenses
The 2017 tax reform law did away with almost all employee deductions that were taken on Schedule A by itemizers. But in certain lines of work, under certain conditions, you can still knock off some of your costs. Here are those adjustments to income, which are now found on Schedule 1:
- You're a schoolteacher and you buy supplies for your classroom. Educators can write off up to $250 each year of classroom expenses if they teach kindergarten through 12th grade and put in at least 900 hours a year on the job. Expenses paid or incurred after March 12, 2020, for personal protective equipment, disinfectant, and other supplies used to prevent the spread of coronavirus are included. You don't have to be a teacher to claim this break. Aides, counselors and principals may claim it if they have the receipts to back it up. But home-schoolers are out of luck.
- You're in the National Guard or military reserves and you travel to drills. You must travel more than 100 miles from home and be away from home overnight. If you qualify, you can deduct the cost of lodging and meals (following the federal per diem schedule) plus an allowance for driving your own car. For 2020 travel, the rate is 57.5 cents per mile, plus what you paid for parking, fees and tolls. For 2021, it's 56 cents for each mile.
- You're a performing artist making less than $16,000 (sorry Beyoncé, not for you). The IRS will expect you to show that at least two employers paid you $200 each for your services and that the expenses you intend to deduct are more than 10% of what you made from performing. Note that the IRS specifies that you need to be an employee receiving wage income.
- You're disabled, have a job, and incur expenses that allow you to work. Here's an example from the IRS: You're deaf and use a sign-language interpreter during meetings while you're at work—that's deductible here.
- You're a "fee-basis" public official and want to write off job expenses. This does not mean people employed by any government. Rather, it's for individuals such as notary publics who perform a public function and are paid directly by the people they serve. If you meet that definition, you can deduct your work-related expenses (ink pads?).
Early Withdrawal Penalties
Did you break into a certificate of deposit (CD) early and get slapped by a bank penalty? Bank penalties can vary widely, but one thing is constant: You can deduct the penalty, no matter how lenient or how stiff, as an adjustment to income.
A Form 1099-INT or Form 1099-OID from the bank will show the amount of any penalty you paid.
(Note that the additional 10% tax on early distributions from qualified retirement plans does not qualify as a deductible penalty for withdrawal of savings.)
Moving Expenses Deduction (If You're in the Military)
The 2017 tax reform new tax law killed the moving expense deduction, but with one significant exception: If you're an active member of the U.S. Armed Forces, the cost of any move associated with a permanent change of station is still deductible if the move was due to a military order. This includes a move from your home to your first post of active duty, a move from one permanent post of duty to another, and a move from your last post of duty to your home or to a nearer point in the United States.
You can write-off the unreimbursed costs of getting yourself and your household goods to the new location. If you drove your own car for a move in 2020, deduct 17 cents a mile plus what you paid for parking and tolls (167 cents per mile for 2021). (Use Form 3903 to tally your moving deductions.)
You may be able to deduct alimony you pay to a former spouse as long as your divorce agreement was in place before the end of 2018 and the monetary payments are spelled out in the agreement. The deduction disappears if the agreement is changed after 2018 to exclude the alimony from your former spouse's income.
You must also report your ex-spouse's Social Security number, so the IRS can make sure he or she reports the same amount as taxable income. (Child support, however, is not deductible.)