Editor's note: A version of this article was initially published on Jan 10, 2019. It is part of the 2020 Tax and IRA Guide.
Question: If I opt to take the standard deduction, can I deduct anything else?
Answer: Taxpayers must choose the larger of the standard deduction or the total of their (allowable) itemized deductions.
The Tax Cuts and Jobs Act raised the standard deduction amounts for taxpayers. For the 2019 tax year, individuals can deduct $12,200; married couples filing jointly can deduct $24,400; and those filing as head of household can deduct $18,350. For most taxpayers, the higher standard deduction works out to be a better choice than claiming itemized deductions, especially when you also factor in some changes affecting (and in some cases eliminating) itemized deductions.
But don't forget about the "above-the-line" deductions you can take in addition to the standard deduction. These deductions, which reduce adjusted gross income, didn't change all that much as a result of the new tax laws. Instead of being on Page 1 of form 1040 as they have been in the past, however, on the new streamlined, postcard-size 1040 form they are on a separate form called Schedule 1 that you attach to your 1040.
Traditional IRA Deduction The maximum contribution per person in 2019 was $6,000 ($7,000 if you're age 50 or older). For single filers covered by a company retirement plan in 2019, deduction eligibility is phased out for modified adjusted gross incomes between $64,000 and $74,000 and between $103,000 and $123,000. If your spouse is covered by a retirement plan but you are not, the deduction is phased out between $193,000 and $203,000. If neither you nor your spouse is covered by an employer-sponsored retirement plan, you are eligible to take the full deduction.
Student Loan Interest Deduction You can deduct the lesser of $2,500 or the amount of qualifying student loan interest you actually paid during the year. You are eligible to claim the deduction if your modified adjusted gross income is less than $85,000 if single, head of household, or qualifying widow(er); $170,000 if married filing jointly.
Alimony For divorce settlements that took place before Dec. 31, 2018, the former spouse paying alimony can deduct it from income before adjusted gross income is figured. The recipient then pays tax on the money received.
As a result of the Tax Cuts and Jobs Act, this will be reversed going forward: Alimony will be paid with aftertax dollars, and the recipient will not have to pay taxes on it. This only applies to divorce settlements that happen after Jan. 1, 2019, though--all older divorce settlements will follow the tax rules that were in place before the law changed unless the divorce agreement is modified to follow the new tax rules.
HSA Contributions If you contributed to an HSA directly in 2019 you can deduct the entire contribution. The maximum contribution amounts for 2019 were $3,550 for self-only and $7,000 for families. Those 55 and over are eligible to contribute an extra $1,000 over these limits.
If your employer deducts the contribution and makes pretax contributions from your pay, it's already excluded from your taxable income and you wouldn't have to claim a deduction.
Deductible Expenses for Self-Employed People Self-employment tax If you're self-employed, you can deduct half of your "payroll" taxes--in other words, the half of the Social Security and Medicare taxes that employers traditionally pay on employees' behalf.
This is sort of a wonky calculation: You are taxed on 12.4% of your salary for Social Security up to the Social Security wage cap of $132,900 (for 2019). You also owe 2.9% Medicare tax on your entire salary (there is no wage cap for Medicare tax). When you work for a corporation, half is paid by your employer, and you owe the other 7.65% (6.2%, up to $132,900 plus 1.45% on your whole salary). When you're self-employed you pay both halves, but you can deduct the half that would have been paid by an employer.
But remember that if you are an employee of a corporation, the corporation you work for can write off its half (7.65%) of FICA taxes paid on your salary as a business expense. For that reason, self-employment taxes apply to only 92.35% of your salary, not the full 100%.
Example: Someone earning a $100,000 salary would owe self-employment taxes on $92,350, which is $14,130 in payroll taxes, but $7,065 is deductible.
Self-Employed Retirement Plan Contributions Contributions to SEP IRAs, SIMPLE IRAs, and qualified plans are tax deductible for employers, and they're deductible for self-employed people, too. Self-employed 401(k) and SEP IRA contributions cannot exceed 25% of compensation or $56,000 (for 2019). SIMPLE IRA contributions cannot exceed $13,000, or $16,000 for those over age 50.
Self-Employed Health Insurance If you're self-employed and neither you nor your spouse is eligible to participate in an employer-subsidized health plan, you may be eligible for the self-employed health insurance deduction. Premiums paid on a health insurance policy covering medical care, including a qualified long-term-care insurance policy covering medical care, for yourself, your spouse, and dependents, are all deductible expenses. The deduction cannot exceed the income earned from your business.
This is an above-the-line adjustment to gross income, not to be confused with the "below-the-line" medical expense itemized deduction. If you don't claim 100% of your paid premiums as an above-the-line deduction, you can include the remainder with your other medical expenses as a "medical and dental expenses" itemized deduction on Schedule A, per the IRS.
Deductible Job-Related Expenses As a result of the Tax Cuts and Jobs Act, moving expenses related to job relocation are no longer deductible unless you are a member of the armed forces on active duty. Similarly, the below-the-line itemized deduction for unreimbursed job-related expenses was also eliminated.
But there are still some above-the-line deductions for job-related expenses that haven't changed.
Teachers If you're a teacher, you may be able to deduct up to $250 in qualified expenses, such as professional development, books, computer equipment, and supplies.
Performing artists If you worked as a performing artist for two or more employers and earned at least $200 or more in wages from each employer but less than $16,000 in total, and your job-related expenses are more than 10% of your income from your performing artist job, you may be able to deduct those expenses.
Note that in order to claim this deduction your adjusted gross income cannot exceed this $16,000 amount, not including this deduction, even if you are married filing jointly. (Your filing status cannot be married filing separately.) Because of this very low income threshold, not many people qualify for this deduction.
If you're a military reservist you can deduct expenses for traveling more than 100 miles from your main home. Your deductible expenses are limited to the federal per diem rates for the city you are traveling to. Fee-based government officials are also allowed to deduct job-related expenses.