Tax Deductions for Individuals

Tax deductions play a crucial role in reducing taxable income for individuals. They come in two main forms: standard deductions, which simplify filing, and itemized deductions, allowing for specific expense claims. Understanding these can significantly impact your tax bill.

1. Standard deduction

   • A fixed dollar amount that reduces the income you are taxed on.
   • The amount varies based on filing status (single, married, head of household).
   • For many taxpayers, it simplifies the filing process as no itemization is required.

2. Itemized deductions

   • Allows taxpayers to list specific expenses to reduce taxable income.
   • Common expenses include mortgage interest, state taxes, and medical expenses.
   • Taxpayers must choose between standard and itemized deductions, opting for whichever is higher.

3. Mortgage interest deduction

   • Allows homeowners to deduct interest paid on mortgage loans for their primary residence.
   • The deduction is limited to interest on loans up to $750,000 for new mortgages.
   • Helps reduce taxable income, making homeownership more affordable.

4. State and local tax (SALT) deduction

   • Permits taxpayers to deduct state and local income taxes or sales taxes paid.
   • The total SALT deduction is capped at $10,000 for individuals and married couples filing jointly.
   • Important for taxpayers in high-tax states, but may not benefit those in lower-tax areas.

5. Charitable contributions deduction

   • Allows taxpayers to deduct donations made to qualified charitable organizations.
   • Contributions can be in cash or property, with specific rules for each type.
   • Must keep records of donations, especially for larger amounts, to substantiate claims.

6. Medical expenses deduction

   • Taxpayers can deduct unreimbursed medical expenses that exceed 7.5% of their adjusted gross income (AGI).
   • Eligible expenses include hospital bills, prescription medications, and certain long-term care costs.
   • Important for individuals with significant medical costs, but requires careful documentation.

7. Student loan interest deduction

   • Allows taxpayers to deduct up to $2,500 of interest paid on qualified student loans.
   • The deduction is phased out for higher-income earners, making it less accessible for some.
   • Beneficial for recent graduates and those still repaying student loans.

8. Retirement account contributions

   • Contributions to retirement accounts like IRAs and 401(k)s can be tax-deductible.
   • Reduces taxable income in the year contributions are made, encouraging savings for retirement.
   • Limits apply based on income and type of account, so it's important to understand eligibility.

9. Self-employment expenses

   • Self-employed individuals can deduct business-related expenses from their taxable income.
   • Common deductions include home office expenses, supplies, and travel costs.
   • Accurate record-keeping is essential to substantiate these deductions during tax filing.

10. Educator expenses deduction

    • Teachers and eligible educators can deduct up to $300 of unreimbursed classroom expenses.
    • This deduction is available even if the taxpayer does not itemize deductions.
    • Encourages educators to invest in their classrooms without incurring additional tax burdens.