Tax Deductions That Don’t Require Itemization: A Guide to Saving Money
Are you looking for ways to reduce your tax bill without having to go through the hassle of itemizing deductions? Well, you’re in luck! Despite the changes brought about by the Tax Cuts and Jobs Act of 2017, there are still plenty of deductions available to everyone that can help you save money on your taxes. In this article, we will explore some of the most common tax deductions that don’t require itemization.
Contributing to a Retirement Account
One of the easiest and most effective ways to reduce your tax bill is by contributing to a retirement account. Many retirement accounts, such as a traditional IRA or 401(k), allow you to deduct your contributions up to certain limits. By doing so, you can lower your taxable income and potentially save on taxes in the long run.
It’s worth noting that there are different types of retirement accounts with varying tax advantages. For example, a Roth IRA or Roth 401(k) doesn’t provide an immediate deduction, but it allows for tax-free growth and no required minimum distributions after a certain age. Consulting with a financial advisor can help you determine which option is best for you.
Put Money Into a Health Savings Account
Another valuable deduction that doesn’t require itemization is contributing to a Health Savings Account (HSA). To be eligible for an HSA, you must have a high-deductible health plan. The contributions made to an HSA are tax-deductible, and any money used for qualified medical expenses is tax-free.
HSAs offer individuals an opportunity to save money on medical costs while also benefiting from potential investment growth. However, it’s important to note that non-medical withdrawals from an HSA before the age of 65 may be subject to a 20 percent penalty. Therefore, it’s advisable to use funds from an HSA solely for medical expenses until you reach retirement age.
Retirement Accounts for the Self-Employed
If you’re self-employed, you have even more options for reducing your tax bill. In addition to other self-employment tax deductions, you can also take advantage of tax deductions on your retirement account contributions. For instance, Solo 401(k) owners can deduct contributions up to $69,000, while those over 50 can deduct up to $76,500.
Simplified Employee Pension (SEP) IRA owners can also contribute and deduct similar amounts. These retirement accounts are also available as Roth SEP IRAs, allowing for after-tax contributions. Consulting a financial advisor or tax professional can help you navigate the complexities of self-employed tax deductions.
Small Business Tax Deductions
Owning a small business opens up a world of tax deductions that don’t require itemization. By filling out a Schedule C and keeping track of your expenses, you can deduct almost any business-related cost. This includes startup costs, utilities, insurance, office supplies and equipment, advertising expenses, travel expenses, salaries of employees, legal fees, and much more.
Taking advantage of these deductions can significantly reduce your tax liability and help your small business thrive. However, it’s crucial to maintain proper documentation and receipts to support your claims in case of an audit.
Self-Employed Health Insurance Premiums
In addition to the myriad of small business deductions, self-employed individuals can also deduct the cost of their healthcare premiums. This includes payments to Medicare for Part B, Part D, and other supplement plans. Moreover, expenses not covered by Medicare, such as hearing, vision, dental costs, and nursing home care, can also be deducted.
To qualify for these deductions, your medical expenses must exceed 10 percent of your adjusted gross income (AGI). Keeping track of your healthcare costs and consulting a tax professional will ensure that you maximize these deductions.
Student Loan Interest
For those still repaying student loans, there’s good news. The interest paid on student loans may be tax-deductible, up to $2,500, as long as the loan hasn’t been forgiven or dismissed. However, the deductibility of student loan interest is subject to income limits. Single filers can claim the deduction until their modified adjusted gross income reaches $85,000, while married couples filing jointly can’t claim it if they earn more than $175,000.
Tuition and Fees
Education expenses can be a significant burden, but luckily, some of these costs can be deducted on your taxes. You may be able to deduct up to $4,000 for tuition and fees paid for yourself, a spouse, or a dependent. However, it’s important to note that you can’t claim this deduction if you’ve already claimed a tax credit from American Opportunity or a Lifetime Learning Credit.
Alimony Payments
Although the rules regarding alimony payments have changed, it’s worth mentioning that if your divorce was finalized before December 31, 2018, you may still be able to deduct alimony payments. However, specific conditions must be met, such as not filing a joint tax return with your ex-spouse and having a divorce or separation instrument in place.
Conclusion
Even though the Tax Cuts and Jobs Act of 2017 made it more challenging to claim itemized deductions, there are still numerous tax deductions available to everyone that don’t require itemization. By taking advantage of these deductions, such as contributing to a retirement account, utilizing health savings accounts, and exploring deductions for self-employed individuals and small businesses, you can significantly reduce your tax bill. Additionally, deductions for student loan interest, tuition and fees, and alimony payments can provide further relief. Remember to consult with a tax professional or financial advisor to ensure you’re maximizing your tax savings opportunities.
