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Tax Exemptions You Can Claim Without Itemizing

Tax Exemptions You Can Claim Without Itemizing

When you file a federal tax return, you have the option of taking the standard deduction and itemizing your deductions. Due to changes in the tax code, many taxpayers now work with a financial advisor to optimize a tax strategy based on their financial goals. Let's take a look at some deductions you can take without itemizing.


Adjusting your income

You can reduce your taxable income by itemizing your deductions. This means you list expenses that will later be deducted from Adjusted Gross Income (AGI). If your expenses were greater than the standard deduction amount during the year, itemizing is a useful filing strategy to maximize your tax benefits.

However, itemizing is not the only way to reduce your income. You can make "adjustments" to your gross income, called "on the line" deductions. These are essentially additional deductions that reduce the amount of income you have to pay in taxes. They are literally above line 7 of your standard tax return, Form 1040, where you enter your AGI. Anyone can claim them, and there is no need to itemize them. Here is a breakdown of each:


Educator expenses

For 2021 taxes due April 18, 2022, teachers, counselors, and principals who are not reimbursed for supplies can deduct up to $250. If they marry another educator and file a joint return, the limit increases to $500. Eligible expenses include books, supplies, computer hardware, software licenses or services, and any other educational materials purchased during the fiscal year for a course and class development.

To claim an excess deduction for your educator's expenses, you must work at least 900 hours in a given fiscal year. Suppose you withdraw money from a Coverdell savings account without paying taxes or receiving non-taxable funds from an education program. In that case, you must deduct these amounts from the total amount of the educator's expenses.

To deduct the educator's expenses, you will need to complete Schedule 1. Line 23 of this form allows you to add the educator's expenses. You can use this value to calculate your AGI on Form 1040 (using line 6 and line 7).


Interest on student loans

If you are paying off student loans or child loans, you can get a tax deduction of up to $2,500 in interest paid. However, there are significant income limits you should be aware of. In the fiscal year 2021, the single tax filing exemption will be completely removed when their Adjusted Gross Income (MAGI) is over $85,000 and $170,000 for couples filing together.

Student loan interest counts as a deduction above on Schedule 1 (line 33) of Form 1040. Please note that the amounts are adjusted annually for inflation.


HSA contributions

Taxpayers with a health savings account can get a tax deduction for their after-tax dollar contributions. The problem is that these funds must pay qualified health care costs.

Those under 55 can deduct up to $3,600 for 2021 and $3,650 for 2022. Those with family coverage can deduct up to $7,200 for 2021 and $7,300 for2022. Account-holders aged 44 and above receive an additional $1,000.


IRA Contributions

Your ability to benefit from the traditional IRA deduction depends on your income level. It is also based on whether you or your spouse have an employer-sponsored retirement plan.

For the 2021 tax year (April 2022 tax filings), individual taxpayers and heads of households with a 401(k) or similar employment account may take advantage of the full deduction if their MAGI is less than $66,000 and is phased out at $76,000.

For the tax year 2022 (April 2023 tax filings), individual taxpayers and households with a 401(k) or similar employment account may take advantage of the full deduction if their MAGI is less than 68,000 $ and phases out at $78,000.

After reaching age 72, you will no longer be eligible for an IRA deduction. And there is no deduction for Roth IRA contributions. It's a good idea to review your IRA contribution and income limits.


Self-employed retirement contributions

You can deduct contributions to self-employed retirement plans, such as SEP-IRA or SIMPLE IRA if you are self-employed.

The IRS states that employers can deduct up to 25% of an employee's salary or $58,000 (whichever is lower) for SEP-IRA contributions for 2021. This limit will increase to $61,000 for 2022. You can deduct your personal salary deduction or non-optional contributions if you are the sole proprietor or partner of a business.


Penalties for early withdrawal

When you withdraw income from a certificate of deposit or another time-deposit account before maturity, your bank will charge a fee. Fortunately, you can deduct the full amount of the fine on Form 1040. All you need to do is attach Schedule 1.


Payment of alimony

You can write off alimony support payments you made to your ex-spouse as long as your divorce agreement was finalized by the end of 2018. You can lose this deduction if there are any changes to your divorce agreement after 2018.

Please note that if you receive child support payments due to a divorce completed before 2019, they may be considered income, and, as the payee spouse, you will need to report it on Form 1040. However, child support payments are not tax-deductible.


Certain business expenses

In most cases, employees must itemize their business expenses using a separate form (Schedule A). But some workers, like artists and civil servants, can simply include them on their tax returns (schedule 1, line 24).


Jury Duty Payment

In addition to the above deductions, there are other tax deductions (called write-in adjustments) that you can write down and claim without details. What you earn for your jury service, for example, counts as a write-in adjustment if you made that payment to your employer because the employer paid you your salary while you were on jury duties.


Bottom Line

When you file your federal return, you must choose whether to take the standard deduction or itemize it. Trump's 2017 tax bill nearly doubled the standard deduction, now preventing taxpayers from itemizing certain deductions. You should consider further tax code changes, especially if you frequently itemize deductions. Some deductions can still be claimed without itemizing.


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Dennis Jao
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