Top Tax Deductions Every Taxpayer Should Know
The government has plenty of money. During fiscal year 2024, the U.S. Treasury collected nearly $5 trillion. So, while voluntary contributions are always appreciated, they are not necessary. However, every year, millions of taxpayers make additional voluntary contributions because they fail to claim all available deductions. The Treasury Department does not even send thank-you notes to these people.
The Standard Deduction is Just the Beginning
Some standard tax deductions are straightforward and clear-cut. You qualify for the entire deduction, or you qualify for nothing at all. But most deductions have some shades of gray. In these situations, a certified tax planner thoroughly evaluates your situation, handles all necessary IRS forms, and informs taxpayers of any required supporting documentation.
Standard Deduction
Taxpayers can choose either the standard deduction or itemized deductions, whichever is higher.
The most widely used deduction is ideal for taxpayers who earn only wage income and have no unusual circumstances in their lives. In tax year 2024, the standard deduction amount is:
- $14,600 for single filers (usually not married and no dependents),
- $21,900 for heads of household (generally unmarried with dependents), and
- $29,200 for married couples filing jointly.
Many people choose the standard deduction because, quite frankly, they’re lazy. Since the standard deduction requires no additional effort or paperwork, they check the box and proceed.
In a few cases, the standard deduction is a no-brainer. However, in most cases, a certified tax planner at least digs a little deeper to ensure that the taxpayer does not leave money on the table.
Medical and Dental Expenses
Taxpayers who itemize may deduct all qualified medical and dental expenses if those qualified expenses exceed 7.5% of the filer’s adjusted gross income (AGI).
Some qualified medical expenses are clearly defined, as mentioned above. This category includes doctor visits, prescriptions, long-term care, and travel expenses (such as mileage, emergency transportation, or rideshare costs) for both emergency and non-emergency medical treatment.
Other qualified medical expenses are not as straightforward. Assume Maxine has epilepsy and doesn’t drive. Depending on the additional facts, she may be able to deduct most public transportation, rideshare, and other transportation expenses, even those not directly related to medical treatment.
State and Local Taxes (SALT)
Pennsylvania’s 3.07% flat tax is one of the highest state tax rates in the country. Local taxes are almost as high in some areas. Do not forget sales tax, excise tax, and the list goes on.
As a result, almost all taxpayers meet the ceiling of $10,000 ($5,000 if married filing separately) in combined state and local income, sales, and property taxes. This cap applies to state income tax or sales tax deductions.
Mortgage Interest
If you’ve lived in a home for less than 10 years, the bank allocates almost all monthly payments to prepaid interest. All interest paid on all mortgages up to $750,000 ($375,000 if married filing separately) is deductible. This deduction also includes interest on home improvement loans and most HELOCs.
Student Loan Interest
Even if they do not itemize, low and middle-income borrowers can deduct up to $2,500 in interest paid on qualified student loans.
Retirement Contributions
Any contributions to IRAs, 401(k)s, or other retirement nest egg accounts are usually deductible. Contributions to other long-term savings accounts, such as prepaid college tuition plans, may also be deductible. For more information about these and other deductions, such as self-employment deductions, contact us online or call 610-933-3507.