A common misconception in tax filing has been that if you use the Standard Deduction versus itemizing your deductions you have few additional benefits available to reduce your tax bill. This is often not the case.
Standard or Itemize?
Every taxpayer can take the Standard Deduction to reduce their income prior to applying exemptions. However, if your deductions are going to exceed the standard amount you may choose to itemize your deductions. The primary reason someone itemizes deductions is generally due to home ownership since mortgage interest and property taxes are deductible and are generally high enough to justify itemizing.
Common sources of itemized deductions are: mortgage interest, property taxes, charitable giving, high medical expenses, and other miscellaneous deductions.
What is Available
So what opportunities to reduce your taxable income are available if you use the Standard Deduction? Here are some of the most common:
- IRA Contributions (up to $5,500 or $6,500 if age 50 or over)
- Student Loan Interest ( up to $2,500)
- Educator Expense Deduction of $250
- Alimony Paid
- Health Savings Accounts (if you qualify)
- Moving Expenses for job related moves
- Self-employed health insurance premiums
- ½ of self employment tax
- Numerous education incentives like; Savings Bond Interest, Coverdell accounts, American Opportunity Credit and Lifetime Learning Credit
- Plus numerous credits including; Earned Income Credit, Dependent Care, Child Tax Credit, Retirement Savings, and Elderly Credit
Income limitations often apply to these tax reduction opportunities, but for those who qualify, the tax savings can be significant. This list is by no means complete. What should be remembered is to rely on a complete review of your situation prior to jumping to the conclusion that tax breaks are just for someone else. That someone else might just be you, the Standard Deduction taxpayer.