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Tax deductions guide: 2019 tax year

Reduce your tax bill by writing off qualifying expenses.

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Getting a tax deduction or credit helps you keep more money in your pocket come tax time. But they both work in completely different ways. Here’s a cheat sheet on how they work and an overview of 36 tax deductions and credits you could use to lower your tax bill this year.

What is a tax deduction?

The US uses a tiered tax bracket system, so the more you earn, the more you pay. Tax deductions are expenses that you subtract from your total taxable income. They usually reduce your tax bill by a percentage. For example, if you’re in the 22% income bracket and you’ve got a tax deduction of $1,000, you’d save $220.

Standard deductions vs. itemized deductions

Standard and itemized are two major categories of deductions available to US citizens. Here’s what you need to know about each:

Standard

Every US citizen is eligible for this deduction, regardless of the purchases they’ve made in a year. A standard deduction is meant to reduce your overall tax bill. It’s estimated that 95% of Americans will use standard deductions this year.

Itemized

If you choose to list every single deductible expense you’ve made throughout the year, those are itemized deductions. Typically, you’d only choose to itemize deductions if the sum is more than what your standard deduction would be.

Standard deductions for 2019 include:

Tax Filing Status 2019 Standard Deduction
Married filing jointly $24,000
Head of household $18,350
Single $12,200
Married filing separately $12,200

Should I itemize or take the standard deduction?

You should choose whichever method saves you the most money. To figure this out, add up all your itemized deductions, including mortgage interest, property taxes, state income or sales tax, charitable contributions, medical expenses and more. If the total of your itemized deductions exceeds your standard deduction limit, you’re better off itemizing. But if your itemized total is below this limit, you’ll save more money if you stick with the standard deduction.

What is a tax credit?

Tax credits are rare gems of the tax world because they reduce your tax bill dollar-for-dollar. If you get a tax credit worth $500, then your tax bill would be reduced by exactly $500.

There are two major types of tax credits: refundable and non-refundable. If a credit is refundable, you receive a refund if the credit reduces your tax bill to $0 and there’s still some leftover. Non-refundable tax credits only reduce your tax bill by the amount owed. If you owe $500 but your tax credit is worth $1,000, you don’t receive a refund for the extra amount.

21 tax deductions and credits for individuals

There are tons of deductions and credits you may qualify for as an individual. Here’s a look at 21 popular tax breaks:

17 tax deductions and credits for businesses

As a business owner, there are several deductions and credits you can take advantage of to reduce your tax bill.

Qualified business income

Business owners can deduct up to 20% of their QBI, or qualified business income, as a pass-through deduction. That means you can write off 20% of income earned as a result of a business, though you must be an owner through either a sole proprietorship, partnership, S corporation, trust or estate.

What’s not claimable as a tax deduction?

Eligible tax deductions get updated by the US government from time to time, and the 2018 Tax Cuts and Jobs Act rendered the following deductions obsolete:

  • Tuition and fees deduction
  • Casualty and theft losses deduction (unless losses were caused by a disaster officially declared by the federal government)
  • Unreimbursed employee expenses
  • Tax preparation costs
  • Hobby expenses
  • Employer-subsidized parking and transportation reimbursement
  • Above-the-line deduction for moving expenses related to a job
  • Above-the-line deduction for alimony payments related to divorces that happened after December 31, 2018

Finally, all deductions that had previously been listed under the IRS’s “miscellaneous deductions” category no longer exist.

How do income tax deductions work in the US?

Your taxable income is the total amount of money that you’re required to pay tax on. By claiming an expense as a tax deduction, you are reducing your taxable income and therefore reducing the amount of tax you’re legally required to pay.

The US uses a tiered tax bracket, so the more money you make the more taxes you’re required to pay.

Taxable income table

Taxable income Tax on this income
0-$9,700 10% of taxable income
$9,701-$39,475 $970+12% of the amount over $9,700
$39,476-$84,200 $4,543+22% of the amount over $39,475
$84,201-$160,725 $14,382.50+24% of the amount over $84,200
$160,726-$204,100 $32,748.50+32% of the amount over $160,725
$204,101-$501,300 $46,628.50+35% of the amount over $204,100
$510,301+ $153,798.50 + 37% of the amount over $510,300

Case study: Tax deductions in action

For example, if you made $45,000 and don’t make any deductions you would owe:
$4,543 + ((45,000 – 39,475) x .22) = $5,758.50.

However, if you made $45,000 but your student loan interest deduction is $2,000, that equation would look more like:
$4,543 + ((43,000 – 39,475) x .22) = $5,318.50.

In that case, you’d save $440 on taxes in a given year due to your deduction.

What are above-the-line deductions?

Above-the-line deductions are essentially adjustments to your income — expenses you subtract before calculating the adjusted gross income (AGI). Some common examples include educator expenses, student loan interest, the health savings account deduction and the IRA deduction. Below the AGI line are the standard deduction and itemized deductions.

Ready to file your taxes?

Data indicated here is updated regularly
Name Product Federal returns starting price State returns starting price Maximum return guaranteed? Free options available? Photo import of W2? Live chat?
Intuit TurboTax
$60
$50
Yes
Yes
Yes
No
File returns electronically and get taken step by step through the tax-filing process, so that you can receive the fastest refund possible for yourself, and/or your business.
Keeper Tax
$89
Included
No
No
No
Yes
Keeper Tax helps people with 1099 income automatically find tax write-offs among their purchases. At tax time, file federal and state directly for $89 or export to file elsewhere for $39.
Liberty Tax
$27.96
$29.95
Yes
No
Yes
Yes
Choose from EZ, Basic, Deluxe, and Premium packages to support the simplest or the most complicated of returns; including business and investments.
TaxAct
$26.95
$49.95
Yes
Yes
Yes
Yes
TaxAct offers downloadable and online tax preparation services for personal, business and enterprise use
TaxSlayer
$17
$39
Yes
Yes
Yes
TaxSlayer offers free federal and state filing for simple returns and $0 federal return to service members filing with a military EIN.
H&R Block
$49.99
$44.99
Yes
Yes
Yes
Yes
File simply and securely with tax software from H&R Block.
FreeTaxUSA
$0
$14.99
Yes
Yes
No
Yes
File federal returns for free and pay $12.95 for state returns with this online tax preparation software.
eSmart tax
$44.95
$36.95
Yes
Yes
No
Yes
Compare tax preparation plans for this software backed by Liberty Tax Service.
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Bottom line

Income tax deductions are meant to alleviate the burden of what you owe the government. It’s worth exploring all avenues where you might save. For more help, check with an accountant or compare tax software that can guide you through filing your income tax return.

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