Most people opt to keep it simple at tax time. Just 30% of U.S. taxpayers itemize their federal tax returns, rather than claiming the standard deduction ($6,300 in 2015). The number of itemizers increases significantly as incomes rise. Nearly everyone with an adjusted gross income (AGI) above $200,000 claims itemized deductions, compared to just 23% of those with an AGI between $30,000 and $40,000.
Depending on your financial situation, itemizing your deductions could save you a significant amount on your total tax bill. The IRS suggests itemizing if you:
- Pay mortgage interest
- Make large charitable contributions
- Have major unreimbursed losses due to a disaster or theft
- Have significant medical expenses
- Have unreimbursed employee business expenses
Itemizing can save you money, but it also makes filing taxes more complicated, as you have to complete additional forms and provide documentation to support your deductions. For many people, it’s simply more efficient to claim the standard deduction.
If itemizing deductions doesn’t make sense for you, that doesn’t mean that you can’t lower your taxes in other ways. There are a number of valuable deductions that even non-itemizers can claim. These are known as “above the line” deductions because they reduce your income before your AGI is calculated.
If you paid student loan interest, saved for retirement, moved for a new job, contributed to a health savings account, or paid college tuition in 2015, you could be able to lower your taxable income and either reduce the taxes your owe or get a larger tax refund.
1. Student loan interest
Amount you can deduct: Up to $2,500
Interest you pay on your student loans can be deducted from your federal income taxes if you meet certain requirements. Not surprisingly, this is one of the most popular above-the-line deductions, claimed by roughly 11.5 million taxpayers in 2013, and can reduce your taxable income by up to $2,500.
To get this deduction, you must have paid interest in 2015 on a loan you took out for the sole purpose of paying for qualified higher education expenses. Eligibility for the deduction begins to phase out when your modified AGI hits $65,000 if you’re a single filer, and $130,000 if you’re married filing jointly. You lose the ability to deduct interest completely when your income exceeds $80,000 if single, and $160,000 if you are married filing jointly (you can’t claim the deduction if you’re married filing separately). If you paid at least $600 in interest on your student loan last year, you should receive a Form 1098-E from your lender that you can use to help you determine how much you can deduct.
2. Moving expenses
Amount you can deduct: No limit — you can deduct all eligible expenses
Did you relocate for work this year? If so, you may be able to deduct some of your moving-related expenses, such as the costs of traveling and shipping your possessions to your new home, provided that your move was closely related to you starting work at a new location. To qualify for this deduction you must pass two tests:
- Your new place of work needs to be at least 50 miles further away from your old home than your previous job.
- If you’re an employee, you have to work full-time for a minimum of 39 weeks in the 12 months after you move. If you work for yourself, you must work full-time for at least 39 weeks in the 12 months after the move and a total of 78 weeks in the 24 months after you move.
If you moved and already tossed your receipts documenting how much you spent, you may still be able to get the deduction. If you used a car to move, you can either deduct your actual expenses or calculate a deduction based on the standard rate of 23 cents per mile. Also, while there’s no limit on the amount you can deduct, certain expenses don’t qualify, such as the cost of buying a new home.
3. IRA contributions
Amount you can deduct: Up to $5,500
Any contributions you make to your traditional IRA can be subtracted from your taxable income, provided you meet certain requirements. You can deduct all or part of your IRA contributions if your income is less than $71,000 if single ($118,000 if you’re married filing jointly). Those who aren’t covered by a retirement plan at work can deduct their IRA contributions no matter how high their income, unless their spouse is covered by a workplace retirement plan, in which case the deduction phases out completely at $193,000 in modified AGI.
Most people can contribute $5,500 to an IRA in 2015. If you’re a slacker who hasn’t already maxed out your contributions, there’s still time to get an extra tax perk. The IRS gives you until April 18, 2016, to make IRA contributions for the 2015 tax year.
4. Tuition and fees
Amount you can deduct: Up to $4,000
Deducting the tuition and fees you pay for yourself, your spouse, or your dependents could shrink your taxable income by up to $4,000. Money you pay for qualified higher education expenses, including tuition and fees at a college, university, trade school, or any other accredited post-secondary school, as well as books and supplies that a student is required to purchase, may be deducted. Room, board, and living expenses aren’t deductible, however.
Even if you pay your tuition with a loan, you still may be able to get the tuition and fees deduction. However, you can’t claim the deduction if your income is above $80,000 if single, or $160,000 if you’re married filing jointly.
Because there are several other education-related tax credits, including the American Opportunity Tax Credit and the Lifetime Learning Credit, you may need to do some math or work with your tax preparer to determine which option will save you more money.
5. Health savings account contributions
Amount you can deduct: Up to $3,350 if single, $6,750 if filing jointly
If you have a high-deductible health plan (HDHP), any contributions you make to your health savings account (HSA) are fully deductible. Single people can deduct up to $3,350, while people who are married and filing jointly can deduct as much as $6,650. As with IRAs, you get some extra time to make your 2015 contributions. As long as the money is in your account by April 18, 2016, you can deduct the amount from your 2015 taxes.
The deduction only applies to direct contributions you make to your HSA. Any contributions made via a payroll deduction are pre-tax, and you won’t be able to deduct them again on your 1040. As an added bonus, once you put money in an HSA, it grows tax-free. You won’t have to pay taxes when you make a withdrawal, assuming the funds are used for eligible medical expenses.