Consisting of all the deductions to your income that come before your adjusted gross income (AGI), a standard is a set dollar amount that you can use to claim tax deduction without itemizing. More important, you can use a standard deduction to reduce your AGI and more importantly, lower your tax bill.
However, it is important to note that the amount of standard deductions varies depending on a taxpayer's age, filing status and income. What's more, the IRS typically reviews these deductions annually, meaning they tend to change each year. To make it easier for tax filers to choose between standard and itemized deductions, the Tax Reform Act of 1986 increased the standard deduction and reduced the number of itemizable deductions. Because of this simplification, more than 70% of American taxpayers now claim standard deductions.
This saves them record-keeping hassles and probably reduces their chances for audits. Below is a look at a few examples of standard deductions.
You can deduct reasonable moving expenses if you're relocating for job-related reasons. However, to claim moving expenses, you have to move at least 50 miles away from your previous job, your move has to closely relate to the start of work and you must work full-time in your new location for a certain number of weeks for the first two years after your job-related move. It is important to note that you can only deduct your moving expenses that are not covered by your new employer. Reasonable moving expenses include the cost of gas or mileage on your personal vehicle, parking fees, storage costs, and travel expenses such as plane ticket and lodging costs that you incur during the move. To deduct these expenses, you have to fill out Form 3903.
You can subtract your contributions to self-employment pension plans, such as Simplified Employee Pension Plan or Keogh, above the line. Similarly, you can deduct a portion of your IRA deduction (traditional IRA) from your income. The exact amount of money you can deduct directly on Form 1040 depends on several factors including whether you or your spouse participate in an employer-sponsored pension plan, your adjusted gross income as well as your IRA contribution amount.
You can deduct up to $2,500 of the interest you paid on a qualified student loan directly from your income. A qualified student loan can be for you, your dependent or your spouse. However, this deduction is subject to income limits. Moreover, married tax filers who file separate returns cannot claim this deduction.
If you're self-employed, you can deduct all the health insurance premiums, including long-term care policies, you paid for yourself, dependents, spouse and children up to age under 27 years.
If you or your spouse is blind or at least 65 years old at the end of the year, you can claim an additional deduction. To claim additional standard deductions, check off box 23a on Form 1040.
It is possible to cut taxes without itemizing. To learn more about how to claim tax deduction without itemizing, visit http://www.wjflynncpa.com today.
Flynn Financial Group Inc