4 Above-the-Line Deductions for Taxpayers Who Don’t Itemize
By: Stacey Nickens
The 2017 tax reform legislation increased the standard deduction, such that few taxpayers itemize their deductions. In 2020, the standard deduction is $12,400 for single filers and $24,800 for joint filers. Few taxpayers will accumulate enough individual deductions to exceed the standard deduction and warrant itemizing. However, there are a few above-the-line deductions that even standard filers can take. For example, the CARES Act allows individuals and joint filers to take an above-the-line charitable deduction of $300 in 2020. Some of these deductions can also reduce your Adjusted Gross Income (AGI), which may allow you to claim other tax breaks with AGI limits.
IRA Contribution Deduction
You can contribute up to $6,000 ($7,000 if you’re 50 and older) to a traditional IRA each year. If you don’t have a 401(k) at work, these contributions are entirely deductible. Those with a 401(k) plan may see their deduction limited depending on their income. Those looking to reduce their taxable 2020 compensation have until April 15, 2021, to make a deductible IRA contribution for the 2020 tax year. Additionally, working seniors above the age of 70 1/2 can now contribute to a traditional IRA.
Deductions for the Self-Employed
Those who are self-employed are faced with paying both the employer and employee portions of Social Security and Medicare taxes. However, the self-employed can deduct half of those tax payments as an adjustment to income. As is the case with an IRA contribution, self-employed individuals can deduct contributions to retirement plans, such as a SEP or SIMPLE plan. Finally, those who are self-employed can deduct the cost of health insurance for themselves and their families, up to the amount of their business’ net income. These deductions can include Medicare premiums and supplemental Medicare. However, self-employed individuals who are eligible to be covered by another employer’s health insurance or by a spouse’s health insurance are not able to claim this above-the-line deduction.
Educational Cost Deductions
You may be able to take an above-the-line deduction for up to $4,000 if you covered someone’s tuition in 2020. To take the full deduction, your AGI must be less than $130,000 if you’re married filing jointly or less than $65,000 if you’re filing as single. Joint filers with an AGI up to $160,000 or single filers with an AGI up to $80,000 can deduct up to $2,000 in tuition and fees. This deduction will not be available after 2020.
A $2,500 student loan interest deduction is also available to joint filers with an AGI of less than $140,000 or single filers with an AGI of less than $70,000. A partial deduction is available to joint filers with an AGI of less than $170,000 and single filers with an AGI of less than $85,000.
Classroom Teacher Deductions
Teachers, principals, aides, and counselors can deduct up to $250 in classroom expenses. This deduction is available to K-12 educators who work at least 900 hours a year on the job. This deduction is also available for educators who paid for personal protective equipment to help stop the spread of COVID-19.
