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Tax Deductions Most Americans Can Use

May 03, 2016  |   Tax Advice,Tax Tips   |   Tags: , , , ,  

Tax breaks such as home office deductions, gifts and charitable deductions can only be used if you itemize on your tax return. Taxpayers that take the standard deduction miss out on these deductions. However, there are certain deductions that all Americans can make use of whether they itemize or not. The Motley Fool shares what you need to know about these deductions, and which ones are not being used by nearly enough people.

“Adjustments to income
tax-deductions“The deductions that anyone can take, regardless of whether they itemize, are often called above-the-line deductions. Technically speaking, these are not deductions at all, but adjustments to income. These are subtracted from taxpayers’ gross income to arrive at a figure that’s appropriately called adjusted gross income, or AGI.

“There are about 20 potential adjustments to income listed on the IRS’s website, but some of these apply to few taxpayers. Here’s a list of some of the more common adjustments:

  • • “Contributions to a traditional IRA: Depending on your income and whether you have a retirement plan at work, you can deduct up to $5,500 in traditional IRA contributions for 2016. If you’re aged 50 or above, the limit is $1,000 higher.
  • • “Educator expenses: Qualified K-12 teachers can deduct up to $250 worth of unreimbursed out-of-pocket classroom expenses.
  • • “Student loan interest: You can deduct the interest you paid on qualifying student loans, up to a maximum of $2,500. This deduction is subject to income limitations.
  • • “Tuition and fees: You can deduct up to $4,000 (depending on your income) in tuition and fees you paid to an eligible higher education institution. Note that this deduction cannot be used in conjunction with either of the tuition tax credits.
  • • “HSA contributions: Qualified contributions to a health savings account are deductible up to $3,350 (self-only) or $6,650 (family).
  • • “Moving expenses: If you moved for job-related reasons, you can deduct certain expenses you incur. Note that this is subject to employment and distance requirements.
  • • “Half of the self-employment tax: When you’re self-employed, you’re responsible for paying both parts (employer and employee) of the payroll taxes for Social Security and Medicare, known as the self-employment tax. Half of this amount can be taken as an adjustment to income.
  • • “Self-employed health insurance: If you’re self-employed, you can deduct any health insurance premiums you pay for yourself and your family.
  • • “Payments to self-employed retirement plans: This includes qualified contributions to accounts such as a SEP-IRA, SIMPLE IRA, and solo 401(k).
  • • “Alimony paid: If you pay alimony to a current or former spouse, it can be used as an adjustment to your income. On the other hand, if you receive alimony, you must report it as income on your tax return.”