No itemizing needed to claim these 23 tax deductions
Thursday, May 06, 2021
Even before 2017's Tax Cuts and Jobs Act (TCJA) greatly increased the standard deduction amounts, most people chose to use the standard deduction amount.
But one thing that the latest tax reform law didn't change is the ability for many to get some added deductions without itemizing.
These used to be called, at least by the tax community, above-the-line deductions. They got that moniker because pre-TCJA they appeared in the last section of the old long Form 1040, just above the last line of that form's first page where your adjusted gross income (AGI) was entered. (A handful also were in a similar place on the 1040A.)
Technically, though, their official name on tax returns always was, and remains, adjustments to income.
But now these adjustments are on the latest Tax Forms Fiesta! featured document (or at least part of it), the Form 1040 Schedule 1.
Deductions for all: Despite the change in form location, these deductions/income adjustments still can be claimed by all eligible taxpayers, regardless of whether they itemize tax deductions on Schedule A or opt to use the standard deduction that applies to their filing statuses.
And they still work the same way to save you hundreds, perhaps even thousands, of tax dollars.
They lower your adjusted gross income (AGI) and generally, the less money you make, the lower your tax bill. Sometimes, a lower AGI also qualifies you for some income-determined deductions or, even better, tax credits, which reduce your tax bill dollar for dollar.
The image of Schedule 1 below, with the income adjustments segment (Part II of the form) highlighted in red, is an overview of the dozen above-the-line deductions (some tax habits die hard)/adjustments specifically listed on your 2020 tax return.
1. Educator expenses (line 10): Eligible educators (more on this in a minute) can deduct some qualified unreimbursed classroom expenses paid out-of-pocket. The base amount is $250 for a single teacher. If you and your spouse are filing jointly and both of you were eligible educators, the maximum deduction is $500. However, neither spouse can deduct more than $250 of his or her qualified expenses here.
That $250/$500 amount also is adjusted annually for inflation. However, since there's not been that much inflation recently, the amounts are unchanged for both the 2020 and, for tax year planning purposes, the 2021 tax years.
One thing has changed, however. In February 2021, the IRS ruled that certain COVID-19 protective items purchased for classroom use count toward this $250 no-itemizing-needed deduction.
Also, chances are you'll have more than the $250 (or $500 joint filer) limit with or without coronavirus pandemic personal protective equipment (PPE) purchases. Thank you for your dedication and sorry for the added expenses. Before the TCJA you could the excess as an itemized miscellaneous expense on Schedule A. That added write-off is no longer available. Any excess classroom costs are just your personal contribution to your students' education.
As for who is an eligible educator, the IRS says this includes kindergarten through grade 12 teachers, instructors, counselors, principals or aides who worked in a school for at least 900 hours during a school year. Home schoolers, however, don't qualify for this deduction.
2. Certain business expenses (line 11): Don't get too excited thinking this might make up for the now-gone miscellaneous business expenses deduction. Schedule 1 notes that these write-offs are limited to folks in special job categories, specifically military reservists, performing artists and fee-basis government officials. Also, reserve military personnel can only use this for costs incurred when they travel more than 100 miles from home to perform services as a National Guard or other armed forces reserve member. If you drove to these duties in 2020, those miles can be counted at 57.5 cents per mile, plus what you paid for parking, fees and tolls. But it drops to 56 cents per mile for the 2021 tax year. All taxpayers who take this deduction also will need to fill out Form 2106.
3. Health savings account deduction (line 12): Here you can write off your contributions to one of these medical coverage plans, commonly referred to as HSAs. However, you'll need more paperwork here, too: Form 8889.
4. Moving expenses for members of the Armed Forces (line 13): Folks who've claimed this tax break in the past probably have notice the added reference on this line's description. It previously was shown only as moving expenses. The TCJA, however, changed that. Now relocation costs are limited to military personnel who are on active duty and who move pursuant to a military order related to a permanent change of station. These relocating U.S. Armed forces members also will have to fill out Form 3903 to detail their eligible costs, the total of which go here.
5. Self-employment tax (line 14): If you worked for yourself, either full-time or as a side job to bring in some extra spending money, you likely had to pay self-employment tax. Half of that amount can be subtracted here. You'll have to include your Schedule SE, too.
6. Self-employed SEP, SIMPLE, and qualified plans (line 15): Staying in the be-your-own-boss vein, if you were able to contribute to a self-employment retirement plan, note that amount here.
7. Self-employed health insurance deduction (line 16): One more break for the independent worker. If you paid for your own medical policy, those premiums are fully deductible here. The insurance also can cover your child who was as old as 26 at the end of 2020, even if your son or daughter wasn't your dependent. If you don't use a tax pro or tax software, there's a worksheet for the self-employed insurance deduction in the Form 1040 Schedule 1 instructions (page 91).
8. Penalty on early withdrawal of savings (line 17): If you had to cash in a CD or other savings account and paid a price for getting your money from your bank, you can write off that fee here. You should have received a Form 1099-INT or Form 1099-OID detailing the early-withdrawal penalty amount.
9. Alimony paid (line 18): The TCJA also changed the tax treatment of alimony for ex-spouses who pay and receive this money. But its changes don't affect divorces that were granted before the tax law took effect. Those distinctions affect the entries on this three-part line.
Under the TCJA, the deduction for alimony payments — the amount entered on line 18a — will remain in effect for folks with divorce agreements finalized by a court and/or a formal divorce decree issued before the end of 2018. That's why the date you enter on line 18c is so important.
As for the former spouse getting alimony, if your status came on or after the TCJA's Jan. 1, 2019, effective date, then you don't owe tax on the spousal payments you get. If, however, it was before the law change, you still owe. That's why line 18b wants your Social Security number, so the IRS can double check that you report it as income.
10. IRA deduction (line 19): If you have a traditional IRA, you might be able to deduct some or all of your contribution. This Schedule 1 deduction depends on many variables, such as income and workplace retirement plans, both for you and, if you're married and file jointly, your spouse. Again, there's a worksheet on pages 94 and 95 of the form's instructions.
11. Student loan interest deduction (line 20): You can write off up to $2,500 in interest on your school debt here. Yes, there's yet another worksheet (page 96) to make sure you qualify — there are AGI determined earning limits — and figure how much you can enter on this line.
12. Tuition and fees (line 21): This education-related tax break was part of the package of tax laws known as extenders that expired at the end of 2020. Don't freak out if you planned to claim this deduction of up to $4,000 of specified schooling costs on your 2020 taxes; you still can. But in 2021, you'll shift your education tax break focus to the American Opportunity Credit and the Lifetime Learning Credit. These credits are worth, respectively, $2,500 and $2,000. And since they are credits, they actually are better than deductions; credits directly reduce your tax liability.
If you can claim any of these income adjustments, your total is then transferred to from Schedule 1's line 22 to line 10a on Form 1040 or, if you're a senior taxpayer, 1040-SR.
Additional adjustments: OK, we're done with Schedule 1 deductions, right? Wrong.
Line 22 of Schedule 1 says "Add lines 10 through 21." What it doesn't say is that you also should check the form's instructions one more time … or keep reading here.
Those instructions list 11 more above-the-line deduction options that can be claimed here. That's why this post, which careful readers thought had a headline typo of 23 instead of 12 deductions, touts the larger number.
The additional income adjustments are:
- Archer MSA deduction (see Form 8853). Identify as "MSA" on line 22.
- Jury duty pay if you gave the pay to your employer because your employer paid your salary while you served on the jury. Identify as "Jury Pay."
- Deductible expenses related to income reported on line 8 (in Part 1's Additional Income section) from the rental of personal property engaged in for profit. Identify as "PPR."
- Nontaxable amount of the value of Olympic and Paralympic medals and USOC prize money reported on line 8 (again, in Part 1's Additional Income section). Identify as "USOC."
- Reforestation amortization and expenses (see IRS Publication 535). Identify as "RFST."
- Repayment of supplemental unemployment benefits under the Trade Act of 1974 (see IRS Publication 525). Identify as "Sub-Pay TRA."
- Contributions to section 501(c)(18)(D) pension plans (see IRS Publication 525). Identify as "501(c)(18)(D)."
- Contributions by certain chaplains to section 403(b) plans (see IRS Publication 517). Identify as "403(b)."
- Attorney fees and court costs for actions involving certain unlawful discrimination claims, but only to the extent of gross income from such actions (see IRS Publication 525). Identify as "UDC."
- Attorney fees and court costs paid in connection with an award from the IRS for information you provided that helped the IRS detect tax law violations, up to the amount of the award includible in your gross income. Identify as "WBF."
- Excess deductions of section 67(e) expenses from Schedule K-1 (Form 1041), box 11, code A. See the Instructions for Schedule K-1 (Form 1041). Identify as "ED67(e)."
Yes, most of these additional 11 costs that you can claim are arcane and probably won't apply to you. But these potential write-offs can add to your Schedule 1 adjustments/deductions total. You should give them at least a cursory look and if you are one of the few filers who can claim them, take tax advantage when you file this year.
That same advice goes for all 23 of these deductions/income adjustments, from the dozen enumerated on special lines and the catch-all 11 at the end.
Make sure you don't miss any that apply to your tax circumstances.
Even if they require you do a bit more tax calculating and force you to fill out another form or two, the added work could cut your tax bill.
That is, after all, the ultimate goal of all taxpayers every filing season.
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