Doing taxes is a literal hunt for ways to minimize your taxable income; the lower your taxable income gets, the less you owe Uncle Sam. It’s one of those situations where the end justifies the means because it doesn’t matter how you get your taxable income number.
There are so many ways to do it; some don’t even require itemizing (more on this later). This blog post will focus on how to cut taxes without itemizing. And if this is your first tax rodeo, no worries; we got you! We will also discuss what itemized deductions are and how they differ from standard deductions.
Let's get into it.
Itemized deductions are certain expenses that you, as a taxpayer, incur to reduce your taxable income. These expenses include state or local taxes, mortgage interest, property, and dental and medical expenses above adjusted gross income (AGI).
Itemized deductions are a list of eligible expenses that can be deducted from a taxpayer's income to reduce the taxable income. On the other hand, a standard deduction is a fixed dollar account that reduces a taxpayer's taxable income.
As a taxpayer, you can only choose standard or itemized deductions. You can't have it both ways. Your goal? Choose the option that reduces your taxable income the most. In cases where your qualified itemized expenses throughout the year exceed the standard deduction, itemizing is the right strategy for you.
For example, let’s say you're a single filer, and your AGI is $50,000 in 2023. If you choose standard deductions, you'll reduce your AGI by $13,850, making your taxable income $36,150. On the other hand, if you've got itemized deductions of $15,000 and elected itemized deductions with the same AGI, your taxable income will be $35,000.
So which option is better?
Well, before the introduction of the Tax Cuts and Jobs Act (TCJA), taxpayers could easily claim large tax deductions by itemizing deductions. Now? Not so much since the tax law nearly doubles the standard deductions.
This means the number of taxpayers who will benefit from itemizing will significantly drop in the years when the TCJA will be in effect (2018–2025). This has automatically made standard deductions a more attractive option. Other reasons taxpayers are opting for standard deductions are given below:
- They allow you to take a tax deduction even when you don't qualify for itemized deductions.
- They eliminate the obsession to keep every single receipt in case the IRS audits you to prove eligibility for your itemized expenses.
- They eliminate the need to itemize deductions like charitable deductions and medical expenses.
For now, let's discuss another way to reduce your tax bite without itemizing (above-the-line deductions).
To reduce your taxable income without itemizing, you've got to find other ways to make "adjustments" to your gross income, a.k.a "above-the-line" deductions. An above-the-line deduction lowers your taxable amount by chipping away your gross income. These deductions remove some expenses from your gross income, leaving you with your adjusted gross income.
The icing on top is that you can still claim these above-line deductions even if you're taking the standard deductions. And you don't need to itemize the deductions.
Here are 13 above-the-line deductions examples:
If you're a traditional IRA holder, chances are you'll be able to deduct a portion of your income while filing taxes. How much you qualify to deduct depends on your Modified Adjusted Gross Income (MAGI) and whether you and your spouse have an employer-sponsored retirement plan.
If you have an employer retirement plan like 401(k), your tax deduction eligibility is as follows:
- Full deduction up to the amount of your contribution limit if your MAGI is $73,000 or less (this is an increase from $68,000 in 2022) for single filers and heads of household. Your deduction eligibility reduces with your income increase and completely phases out once your MAGI is $83,000 (an increase from $78,000 in 2022).
- For joint filers, these limits are $116,000 and $136,000 (an increase from $109000 to $129000 for the tax year 2022).
If you're a single filer, or you and your spouse aren't covered by any employer-sponsored retirement plan:
- Your traditional IRA contributions are fully deductible. However, if one of you has an employer retirement plan, you're only eligible for a full deduction if your AGI is $218,000 or less, which completely phases out at $228,000.
Taxpayers with an HSA account are eligible for tax breaks from their tax-free contributions. However, there's a catch: You can only use this money to pay for qualified health expenses. The latter includes dental and vision care covered under your high-deductible health care policy.
HSA deduction eligibility in 2023 is as follows:
- Up to $3,650 in 2022 and $3,850 in 2023 for single folks
- Up to $7,300 in 2022 and $7,750 in 2023
Account holders above 55 years of age are allowed an extra $1,000 to play catch up.
If you're self-employed and hold a SIMPLE IRA, SEP IRA, or 401(k), you're eligible for an above-the-line deduction for your retirement contributions. As a business owner, there are some perks you get. For example, the IRS allows you to deduct your salary contribution and any matching or non-elective contributions you make while filing for your taxes.
The deduction limits are as follows:
- SIMPLE IRA: Up to $15,000 in 2023 and $14,000 in 2022. Participants over 50 are allowed a catch-up fee of $3,500 in 2023 and $3,000 in 2022.
- SEP IRA: 25% of an employee's salary or $66,000 for 2023 and $61,000 for 2022.
- 401 (K): $22,500 or $30,000 (if you're over 50) for 2023 and $20,500 or $27,000 respectively for 2022.
You're eligible for up to $2,500 student loan interest deduction for any qualified student loan. This is regardless of whether the payment is for you, your dependent, or your spouse. Here are the student loan interest limits for 2023:
- For single filers, head of household, or qualifying widowers, your loan interest deduction eligibility starts with an AGI of $75,000 in 2023 and $70,000 in 2022 and phases out at $90,000 AGI and $85,000 in 2022.
- If you're filing jointly with your spouse, your loan deduction interest eligibility starts at $90,000 and phases out at $180,000 in 2023. The limits are $85,000 and $170,000 for 2022.
In March 2020, the CARES Act paused student loan payments and froze interest rates at 0%. The latest extension of the offer is on June 30, 2023. This means you might not be eligible for the student loan interest waiver even if you continue making payments. This is because the waiver is for interest, and with the rate at 0%, all your money goes to your principal balance.
Principals, counselors, and teachers are eligible for a deduction if they're not reimbursed for buying supplies. To qualify for the educator expense refund, you must put in at least 900 hours of work in a school year in a school that offers secondary or elementary education. Some of the expenses that fall under this category include:
- Computer equipment
- Software licensing
- Personal protective equipment and disinfectants
- Athletic supplies
The educator expenses deduction limits are as follows:
- Up to $300 in 2023 and $250 in 2022 for single filers
- Up to $600 in 2023 and $500 in 2023 for an educator married to another educator and filing jointly
Alimony payments qualify as above-the-line deductions. For this deduction, the IRS requires you to provide your ex-spouse's social security number to confirm they've been receiving payments.
Unfortunately, these deductions are only limited to divorce agreements executed after 2018 or completed before 2019 and later modified. If you're an alimony recipient, you must include the payment as an income and pay taxes for it.
If you are your own boss, you're required to pay Social Security and Medicare taxes. The self-employment tax rate (SE tax) is 15.3% (12.4% for social security and 2.9% for Medicare).
Employers and employees share the self-employment tax by paying 7.65% each. If you and your spouse are self-employed, you'll have to pay for both parts yourselves and an extra 0.9% Medicare tax rate for any amounts over $250,000.
The threshold amount for self-employed tax filing status in 2023 is as follows:
- Married and filing jointly and separately: $250,000 and $125,000, respectively
- Single, head of household (with qualifying person) and qualifying surviving spouse with dependent child: $200,000
When calculating your income tax, the IRS allows you to deduct half of your self-employment tax directly from your net income. This is because the IRS considers the employer portion of the SE tax a business expense.
This is another straightforward deduction for self-employed folks. If you purchase your health insurance as self-employed, you can deduct 100% of your insurance premiums when filing taxes. The only requirements are:
- You shouldn't have access to health insurance from an employer.
- Your business must generate a net income that's not less than the total medical insurance expenses.
You're allowed to deduct health insurance premiums you pay for yourself, a dependent child, a spouse, or a non-dependent child below 27 years of age.
Under the previous laws, taxpayers were allowed to deduct approved costs associated with moving, including personal items, household goods, and travel costs. However, with the TCJA limited, this deduction is only limited to members of the Armed Forces and their family members (between 2017 and 2025).
If you have a certificate of deposit account (CD deposit) or any other time-deposit account, you know you're not allowed to withdraw money before the maturity date. In case you withdraw the money (whether it's the full amount or $20), the bank or institution in charge penalizes you.
The penalty can be six months or a year's interest, depending on your agreement. Luckily, the IRS allows you to deduct the penalty when filing taxes because it affects the interest amount you earn.
Unfortunately, these tax deductions aren't viable as of December 31, 2020. However, if you paid qualified tuition fees in 2018, 2019, and 2020, you can still claim a maximum deduction of $4,000.
Archer Medical Savings Accounts were enchanted in 1996 but later discontinued in 2007. However, those with the accounts were allowed to keep them as long as they remained eligible.
Any amount contributed to the Archer MSA accounts is tax deductible; the limits are as follows:
- Self-coverage: $2,650 to $3,950 in 2023 and $2,450 to $3,700 in 2022
- Family coverage: $5,300 to $7,900 in 2023 and $4,950 to $7,400 in 2022
Employees often have to itemize their business costs on Schedule A or Schedule C. However, some workers, like certain government officials and performing artists, can include expenses on their income tax returns.
This deduction has many categories, including cleaning and altering costumes, stage makeup, etc. It's best to talk to a tax professional to know more.
All you need to claim an above-the-line deduction is to complete your tax return. These deductions are easy to spot, and you'll see them near the field where you should enter your adjusted gross income.
If you've elected the standard tax return with Form 1040, you'll find at least half a dozen deductions you qualify for.
Although claiming above-the-line deductions isn't rocket science, you might still be required to attach other tax forms to prove eligibility. For instance, if you claim a deduction for your HSA, you must complete Form 8889 and attach it when you file your taxes. Due to the new format 1040, you'll need to attach schedules you'd otherwise not previously required.
Can I deduct charitable contributions if I don't itemize?
No, you can only deduct your deductible charity contributions if you itemize them on Form 1040, Schedule A. Itemizing your charity donations only makes sense if your deductibles are sizable and more than your standard deduction that tax year.
Is mortgage interest deductible without itemizing?
No. You can only claim your mortgage interest deduction if you itemize it.
They're many ways of getting tax breaks – and when it comes to it, the end justifies the means. All that matters is that you find a way to reduce your income as much as you can and, in return, reduce the tax you have to pay.
We discussed above-the-end deductions that you can take advantage of to cut taxes without itemizing in these guides.
While they were all fantastic options, we only recommend going for them when they give you an advantage over itemized deductions.
If you found this blog post, check out our other how-to guides and learn more with us.
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