Are you wondering if you should take the standard deduction? If you’re single, you’re looking at $6,200. Married couples at twice that amount. Maybe you’re considering itemizing your deductions to get a bigger tax return. If you are, remember that you’ll need to have your receipts for all medical, tax, charitable contributions and other expenses. You’ll also need mortgage records and banking information, and you’ll need to adhere to percentage rules and exceptions.
Itemizing can be rough. It requires organization, excellent record keeping, and a whole lot of patience. And after all that, it may be unnecessary. You may make out better by using the standard deduction, as well as tax breaks that are allowed in conjunction with it. Lines 23 through 35 of the Form 1040, as well as the detailed instructions in the 1040 booklet, will explain how to take breaks in addition to the standard deductions. The following explain a little more about these types of deductions.
Above the Line Deductions
These types of deductions are adjustments to your income and have no limit. You should seek to take as many of these as possible. For example, those in the 35% tax bracket are able to save $350 in taxes for every $1,000 deducted using above the line income adjustments. Some of the following are typical above the line deductions:
- Employee Business Expense: Claimed on Schedule A by adding your expenses and taking 2% of your adjusted gross income.
- Army Reserve/National Guard: You can deduct the cost of lodging for drills farther than 100 miles, as well as 50% of your meal costs. You can also take the .56/mile driving deduction.
- Performing Artists: If your income is less than $16,000, you can deduct up to 10% of your work related expenses provided you can show proof of two employers who paid you up to $200.
- Disabled Workers: Any expenses you incur due to work are able to be deducted. Example: Hiring a sign language interpreter for a meeting.
- Moving costs: if you have moved more than 50 miles due to a change in employment, you may be able to deduct certain expenses, like the costs of getting you and your stuff to the new home. You’ll need to file Form 3903 in order to claim.
- Student Loan Interest: You can deduct up to $2,500 in interest paid on an education loan for yourself, your spouse, or a dependent. Single taxpayers must have an AGI lower than $75,000 ($150,000 married, filing jointly).
- Entrepreneurs: Those who create an actual product can take a deduction of 9% of the income generated from the product. This is a bit more difficult to prove, so make sure you have concrete documentation for this deduction.
- Jury Duty Pay: If your employer pays while you serve, you’re usually requested to turn in the money from the court. You can deduct this typically small amount that you return to your employer.
- Alimony: Can be deducted as long as you list the payments exactly as the divorce decrees. You’ll need to use your ex’s SS#, and it will be checked against their return to make sure the amount match.
- Early CD: Penalties form using a certificate of deposit early can be deducted using Form 1099-INT or Form 1099-OID.
- Self Employed: Medicare and Social Security taxes must be paid on both sides by a self-employed individual. You are able to write off half of the 15.3% of your net income that you pay in taxes.
- Health Plan: High deductible plans that you contribute to post-tax can be eligible for above the line deductions. You will file Form 8889 for contributions made to a health savings fund, even if done with pre-tax money, though there is no write off for money contributed before taxes.
When you file your taxes, it’s always best to compare both deduction methods and chose the one that will give you the best tax benefit, and hopefully, the largest refund. You can take the full tax season to compare your deductions, and you may find that it is worth the extra time.