Common Tax Deductions: Reduce Your Taxable Income

Two Types of Deductions

Above-the-Line Deductions

Reduce your AGI regardless of whether you itemize. These are especially valuable because they can also help you qualify for other tax benefits.

Itemized Deductions

Only beneficial if they exceed your standard deduction. You choose one or the other, not both.

Above-the-Line Deductions

IRA Contributions

• Traditional IRA: Up to $7,000 (2024), $8,000 if 50+
• Must have earned income
• Deductibility phases out at higher incomes if you have a work retirement plan

HSA Contributions

• Individual: Up to $4,150 (2024)
• Family: Up to $8,300 (2024)
• Plus $1,000 catch-up if 55+
• Triple tax advantage: deductible, grows tax-free, withdrawals for medical expenses tax-free

Student Loan Interest

• Up to $2,500 per year
• Phases out at higher incomes ($75K-$90K single, $155K-$185K married)

Self-Employment Tax Deduction

Self-employed individuals can deduct 50% of self-employment tax

Self-Employed Health Insurance

100% of premiums deductible for self-employed individuals

Educator Expenses

Teachers can deduct up to $300 for classroom supplies

Itemized Deductions

State and Local Taxes (SALT)

• State income tax OR state sales tax (not both)
• Property taxes
• Capped at $10,000 total ($5,000 if married filing separately)

Mortgage Interest

• Interest on up to $750,000 of mortgage debt ($1M if before 12/16/2017)
• Primary residence and one second home
• Must itemize to claim

Charitable Donations

• Cash donations: Up to 60% of AGI
• Non-cash donations: Fair market value
• Must have documentation (receipts, acknowledgment letters)
• Can include volunteer mileage ($0.14/mile in 2024)

Medical Expenses

• Only expenses exceeding 7.5% of AGI
• Includes premiums, procedures, prescriptions, equipment, mileage to appointments
• Most people don't meet this threshold

Casualty and Theft Losses

• Only for federally declared disasters
• Subject to deductibles and AGI limitations

Commonly Missed Deductions

Work-From-Home (Self-Employed Only)

• Employees cannot deduct home office expenses
• Self-employed can use simplified method ($5/sq ft, up to 300 sq ft)
• Or actual expenses method (percentage of home costs)

Investment Expenses

• Investment interest expense (limited to net investment income)
• Margin interest

Job Search Expenses (No Longer Deductible)

Note: These were eliminated by 2017 tax reform through 2025.

State Taxes Paid Late

If you paid state taxes in 2024 for 2023, include them in 2024 SALT deduction.

Tax Credits (Even Better Than Deductions)

Earned Income Tax Credit (EITC)

• For low-to-moderate income workers
• Up to $7,830 with 3+ children (2024)
• Refundable—can get money back even with no tax owed

Child Tax Credit

• Up to $2,000 per qualifying child under 17
• $1,600 is refundable

Child and Dependent Care Credit

• 20-35% of up to $3,000 (1 child) or $6,000 (2+ children) in childcare expenses
• Non-refundable

Education Credits

• American Opportunity Credit: Up to $2,500/year for first 4 years of college, partially refundable
• Lifetime Learning Credit: Up to $2,000/year, no limit on years

Saver's Credit

• For low-to-moderate income retirement contributions
• Up to $1,000 ($2,000 married filing jointly)
• Income limits apply

Deduction Strategy

Standard vs. Itemizing Decision

Add up your potential itemized deductions:

• SALT (up to $10K)
• Mortgage interest
• Charitable donations
• Medical (if >7.5% AGI)

If total exceeds standard deduction, itemize. Otherwise, standard deduction wins.

Bunching Strategy

If you're close to the standard deduction threshold, consider "bunching":

• Make two years of charitable donations in one year
• Prepay property taxes (if not hitting SALT cap)
• Itemize that year, standard deduction next year

Key Takeaways

1. Above-the-line deductions benefit everyone; prioritize these
2. Only itemize if deductions exceed the standard deduction
3. Don't forget HSA and IRA contributions
4. Tax credits are more valuable than deductions dollar-for-dollar
5. Consider bunching deductions for alternating years