With the standard deduction higher than ever — $32,200 for married couples filing jointly and $16,100 for single filers — most Americans no longer itemize. But that does not mean your opportunity to reduce taxable income disappears.
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Many taxpayers assume that choosing the standard deduction eliminates any additional write-offs. That misconception costs money, according to Randall Brody, an IRS enrolled agent and founder of Tax Samaritan.
“The standard deduction simply replaces itemized deductions such as mortgage interest or state taxes. It does not eliminate adjustments that reduce income before taxable income is even calculated,” he explained.
While above-the-line adjustments are available to both those who itemize and those who take the standard deduction, there are potential limitations for certain taxpayers, such as high earners, said John A. Madison, CPA. Here are five deductions to consider.
Retirement savings remain one of the most powerful ways to lower income even if you take the standard deduction, according to Gene Bott, a CPA and partner at Kevin O’Leary’s Tax Hive.
This includes employer-funded IRAs, self-employment retirement plans and 401(k) plans. The exception is Roth retirement accounts, which don’t reduce your AGI, Bott said.
Brody said it’s common for taxpayers to delay retirement contributions until year-end without realizing they still have time to fund certain accounts and reduce prior-year taxable income. For higher earners, this can mean the difference between staying within a tax bracket or spilling into the next.
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If you have a high-deductible health plan, a health savings account (HSA) remains one of the most efficient tax tools to reduce your AGI, Brody said. That reduction can then make you eligible for other deductions or tax credits.
Madison said HSAs offer “a triple tax benefit: The contribution is deductible, the growth is tax-deferred and qualified withdrawals are tax-free.”
If you use the funds for qualifying healthcare expenses, the funds come out tax-free, as well.
Standard deduction filers can also deduct student loan interest. According to the IRS, taxpayers can deduct “the lesser of $2,500 or the amount of interest you actually paid during the year.” It does phase out at certain income levels, however.
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