The American tax code can often times be confusing and filled with misinformation. A lot of taxpayers speculate that if they choose to go with the standard deduction, there aren’t any other available deductions they can take. This is the farthest thing from the truth as there are still some available deductions you can take to reduce your taxable income. These deductions are called above-the-line deductions and for 2019/2020 tax years, many taxpayers can benefit from them. Although these deductions don’t apply to everyone, even if you take a single one of them you will end up with paying less tax. Here are some of the most common above-the-line deductions you can take even if you don’t itemize in 2019/2020.
Student Loan Interest
On average, most Americans pay between $20,000 to $25,000 in student loan debt. There is a high chance that you also pay interest, most student loans have an interest rate of around %6 to %9. If you are obligated to pay these interest rates, you can deduct as much as $2,500 of this amount from your taxable income. However, if someone claims you as a dependent, this above-the-line deduction will not be available for you.
Health Savings Account Contributions
Contributions to your health savings account mean you are contributing pre-tax dollars. That cuts your taxable income, so it eventually lowers your taxable income. Also, you get the financial benefit of the dollars without paying taxes on them. If you are a single filer, you will be able to deduct up to $3,500, this number goes up to $7,000 for those of you with family coverage, and if you are older than 55 years of age you will also get another extra $1,000 as a catch-up allowance. These contributions to your HSA can really benefit you in the long run and you get the reduce the amount of contributions as an above-the-line deduction.
Self Employed Deductions
There isn’t just a single above-the-line deduction for the self-employed. The first one you can take as a deduction is the self-employment tax you paid throughout the year. The other one is only obtainable if you are paying for an insurance premium. You can deduct any premiums for insurance for yourself, your spouse, and dependent children. The premium must be under your business in order to claim the deduction.
This deduction allows qualified educators such as kindergarten through grade 12 teachers, counselors, instructors, and aides to deduct as much as $250($500 for the married couple who are both educators) for any necessary educational supplies that you have paid out of your own pocket during the tax year.