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Guide to tax deductions 2019
Reduce your tax bill by writing off qualifying expenses.
Deductions are expenses that you subtract from your total taxable income, effectively reducing the overall amount of tax you owe the government.
The US uses a tiered tax bracket system, so the more you earn, the more you pay — deductions can help take the edge off.
How do I know if I can claim something as a tax deduction?
The US tax system is very complicated with lots of fine print, so the best way to know whether or not you can claim something as a deduction is to work with an accountant.
If you’re set on flying solo, head over to the IRS’s website. Its Credits and Deductions for Individuals page lists the types of deductions you might be eligible for.
What’s the difference between a standard deduction and an itemized deduction?
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 |
What are some things I can claim against my taxes?
In the US, there are five major categories of deductions that individual taxpayers might be eligible for, with specific expenses listed within. These include:
What’s not claimable as a tax deduction?
Eligible tax deductions get updated by the US government from time to time, and the 2017 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
- Employer-subsidized parking and transportation reimbursement
- Above-the-line deduction for moving expenses related to a job
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?
Updated December 6th, 2019
Tax credit vs. tax deduction
Tax credit and tax deduction are not interchangeable. While a credit reduces the amount of taxes due, a tax deduction reduces your overall amount of taxable income.
In other words, credits are dollar-for-dollar. So if your tax credit is $500, then your tax bill would be reduced by exactly $500. On the other hand, tax deductions reduce your taxable income income by a percentage. For example, if you’re in the 22% income bracket and you’ve got a tax deduction of $500, you’d save $110.
What are work-related tax deductions?
In the US, only self-employed individuals such as freelancers and contractors are eligible to deduct expenses related to work. These folks often qualify for perks such as home office deductions and self-employed health insurance deductions.
In the past, there was a deduction called unreimbursed employee expenses where you could write off cash you spent buying a uniform for the workplace. But the Tax Cuts and Jobs Act of 2017 eliminated this deduction.
Qualified business income
Business owners can deduct up to 20% of their QBI, or qualified business income, as a pass-through deduction. In layman’s language, it means that 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.
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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