Itemizing on your tax return is a great way to benefit from a host of tax breaks the IRS makes available to filers. But for itemizing to make sense for you, your total deductions will need to exceed the standard deduction you're entitled to claim.
The standard deduction changes from year to year. In 2021, it's
- $12,550 for single tax filers and married couples filing separately
- $25,100 for married couples filing jointly
- $18,800 for heads of household
That said, there are some tax deductions you may be eligible to claim even if you don't itemize on your tax return. Here are several that may apply to you.
1. IRA contributions
Traditional IRA contributions are tax deductible up to each year's maximum allowable limit. For both the 2020 and 2021 tax year, that means you can deduct up to $6,000 in IRA contributions if you're under age 50, or $7,000 if you're 50 or older. Contributions to a SEP IRA or SIMPLE IRA count as well. SEP IRAs max out at $57,000 for the 2020 tax year and $58,000 in 2021 regardless of age, while SIMPLE IRAs max out at $13,500 for workers under 50 and $16,500 for those 50 and over for both the 2020 and 2021 tax year. However, if you're saving in a Roth IRA, those contributions won't be eligible for a tax deduction.
2. HSA contributions
Health savings account (HSA) contributions are tax deductible the same way IRA contributions are. For the 2020 tax year, you can deduct up to $3,550 for self-only coverage if you're under 55, or $4,550 for self-only coverage if you're 55 or older. For the 2021 tax year, these limits rise to $3,600 and $4,600, respectively. Meanwhile, if you contribute to an HSA on behalf of a family, the limits for 2020 are $7,100 if you're under 55 or $8,100 if you're 55 and over. For 2021, these limits rise to $7,200 and $8,200, respectively.
3. Self-employment tax
When you work for an employer that withholds taxes from your earnings, you're only on the hook for half of your annual Social Security and Medicare taxes. But if you work for yourself, you'll pay self-employment taxes that equal your entire Social Security and Medicare obligation. Specifically, you'll pay a 12.4% Social Security on up to $137,700 worth of income for 2020 or up to $142,800 for 2021. You'll also pay a 2.9% Medicare tax on your entire income. But you can also claim half of your self-employment tax as a deduction on your tax return.
4. Educator expenses
Teachers routinely spend their own money on classroom supplies. The good news is that you can deduct up to $250 in educator expenses on your tax return. Just retain your receipts for the items you purchase.
5. Health insurance premiums
If you're self-employed, you can deduct the premiums you pay for your own health coverage on your taxes, as well as your family's. However, salaried employees who get insurance through their jobs can't claim this deduction.
6. Student loan interest
If you have a student loan in your own name and aren't listed as a dependent on someone else's tax return, you can deduct up to $2,500 in student loan interest. For both the 2020 and 2021 tax years, you'll get a full deduction if you're a single tax filer with a modified adjusted gross income (MAGI) of up to $70,000. From there, the deduction starts to phase out, and you won't get to claim it once your MAGI exceeds $85,000. If you're a married couple filing jointly, you can claim the full student loan interest deduction with a MAGI of up to $140,000. From there, the credit starts to phase out and disappears once your MAGI exceeds $170,000.
7. Charitable donations
Normally, deductions for charitable donations are only available to filers who itemize. But in 2020, you can deduct donations of up to $300 even if you don't itemize. That $300 applies whether you're a single filer or you file a joint return. However, in 2021, that $300 is deductible on a per-person basis, so if you're single, you can deduct $300, but if you're married filing jointly, you can deduct $600.
8. Alimony payments
If you have a divorce agreement that was finalized by the end of 2018, you may be eligible to deduct the alimony payments you make to a former spouse. However, you'll generally lose this deduction if changes to your divorce agreement were made after 2018.
Know your tax breaks
Itemizing on your tax return isn't the only way to lower your IRS bill. Even if you don't itemize, you can still capitalize on the above deductions -- and pocket more money in the process.