You subtract tax deductions from your taxable income to reduce your income tax burden. By decreasing your taxable income, you reduce your tax liability. All taxpayers, regardless of filing status, can choose to reduce their adjustable gross income and thereby decrease their taxable income by means of a standard deduction or by itemizing their deductions.
What Is a Standard Deduction?
A taxpayer may elect to decrease her taxable income by means of a standard deduction – one deduction of a fixed amount. If you do so, there's no need to itemize your deductions, or list those expenses that you will subtract from your adjusted gross income, an act which reduces your taxable income and your tax liability.
The amount of a standard deduction varies depending on the taxpayer's income, age, filing status and whether she has a disability. What's more, the dollar amount of the standard deduction changes each year. For the tax year 2021, the standard deduction is $12,550 for the "single filer" and the "married filing separately" statuses. In contrast, for 2021, the standard deduction is $18,800 for a "head of household."
If you are unmarried and are 65 years of age or older or blind, you receive an additional standard deduction in the amount of $1,750.
What Are Itemized Deductions?
An itemized deduction is the dollar amount you paid for a deductible expense, such as state and local taxes, medical expenses and mortgage interest. If you itemize, you list each of your deductible expenses on Schedule A, which you attach to your tax return.
You may lower your tax bill by itemizing your deductions if the total of these deductions is greater than the standard deduction for your filing status. If you do so, you'll need to keep track of what you spent and keep supporting documents, including receipts, bank statements, medical bills and tax forms.
Above-the-Line Deductions for Single Taxpayers
Even if you take the standard deduction, there are some tax deductions you can claim. Typically, "above-the-line" deductions have no income limits.You simply claim them on Schedule 1 of the Form 1040.
What's more, because these deductions, including the following, lower your adjusted gross income, you might be eligible to claim other tax breaks for which AGI-based income limits exist.
Taking the IRA Deduction
When you contribute to a traditional individual retirement account (IRA), you save for retirement and reduce your tax liability on earned income in the year of your contribution. For the tax year 2021, your contribution limit is $6,000, or $7,000 if you're age 50 or older.
Getting a HSA Deduction
If you contribute to a health savings account (HSA) and make payments for a company health plan with a high deductible, you can deduct any after-tax HSA contributions. The deduction is not available to you if your contributions were made with pre-tax dollars.
The maximum HSA contribution for 2021 is $7,200 for family coverage and $3,600 for an individual. If, during the tax year, you're 55 or older, you can contribute (and deduct) an additional $1,000.
Self-Employed Tax Deduction
When you work for yourself, you pay the employer and the employee shares of Social Security and Medicare taxes, namely 15.3 percent of net self-employment income. You can write off half of that tax liability as an adjustment to your income. You use Schedule SE to calculate the self-employed deduction.
Student Loan Interest Deduction
Assuming you are single and your modified adjusted gross income is less than $70,000, you can deduct up to $2,500 in student loan interest. The deduction is phased out for this who earn more than $70,000, and it disappears entirely for the single taxpayer who earns more than $85,000.
The Alimony Deduction
If your divorce decree was in place on or before 2018, you might be able to deduct alimony. This deduction vanishes, however, if the decree is changed in 2019 or later to exclude that alimony from the income of your former spouse. Refer to IRS Topic No. 52 for the details.
Business Expenses Deduction
Depending on your line of work and your personal circumstances, you can write off some business expenses using an "above-the-line" tax deductions. Take a look at Form 1040 Schedule 1 for the details.
Early Withdrawal Penalty
If you withdraw cash in a certificate of deposit (CD) early, the bank will assess an early withdrawal penalty. Each bank determines the amount of that penalty (within reason). To account for the penalty, on your taxes, you use Form 1099-INT or Form 1099-OID to document the penalty you paid.
Other Deductions for Single Taxpayers
In addition to those listed, there are many other "above-the-line" deductions that a single filer can take using Schedule 1 to lower her tax obligation. See Form 1040 Schedule 1 for the details.
What's more, when a single filer files a tax return, she may itemize "below-the-line" deductions to claim qualified deductions or tax credits for expenses that qualify as deductions. These include medical expenses, mortgage interest payments, and state and local taxes.
Medical Expense Deduction
When itemizing your deductions, you can deduct the out-of-pocket medical, dental and/or vision expenses that exceed 7.5 percent of your AGI. These expenses include insurance premiums, doctor co-pays, lab fees and the cost of prescription medications, eyeglasses and contact lenses, hospital stays, surgeries and ambulance services.
State and Local Taxes
You can deduct the state and local taxes that you pay each year, including property taxes, state and local income taxes or sales taxes, and personal property taxes. For 2021, the IRS limits these deductions to $10,000.
Mortgage Interest Deduction
As a single taxpayer, you can deduct interest you paid on a mortgage for your primary residence and one vacation home. However, the IRS limits your mortgage interest deduction to interest paid on the first to $750,000 of that debt, assuming you incurred the debt after December 16, 2017, or up to $1,000,000 if you incurred the debt prior to December 16, 2017.
Deducting Gifts to Charity
You can deduct cash and property donations, assuming that you donate the items to a qualified tax-exempt organization. To confirm a charity is tax-exempt, look it up using the IRS’s Tax Exempt Organization Search tool.
- Internal Revenue Service: About Schedule A (Form 1040), Itemized Deductions
- Internal Revenue Service: Topic No. 551 Standard Deduction
- Internal Revenue Service: Topic No. 501 Should I Itemize?
- Forbes Advisor: How Much Is the Standard Deduction for 2021 And 2022
- Internal Revenue Service: Credits and Deductions for Individuals
- Internal Revenue Service: Schedule A Form 1040
- Internal Revenue Service: About Form 8889, Health Savings Accounts (HSAs)
- Internal Revenue Service: Publication 969 (2021), Health Savings Accounts and Other Tax-Favored Health Plans
- Internal Revenue Service: Schedule SE
- Internal Revenue Service: Topic No. 456 Student Loan Interest Deduction
- Internal Revenue Service: Topic No. 452 Alimony and Separate Maintenance
- Internal Revenue Service: Form 1040 Schedule 1
- Internal Revenue Service: About Form 1099-INT, Interest Income
- Internal Revenue Service: About Form 1099-OID, Original Issue Discount
- Cornell Law School: Itemized Deductions
- Internal Revenue Service: Topic No. 503 Deductible Taxes
- Internal Revenue Service: Search for Tax Exempt Organizations
- Internal Revenue Service: Individual Retirement Arrangements (IRAs)
- Internal Revenue Service: IRA FAQs
Billie Nordmeyer is an IT consultant of 25 years standing. As a senior technical consultant for SAP America and Deloitte Touche DRT Systems, a business analyst, senior staff, and independent consultant, Billie has worked across the retail, oil and gas, pharmaceutical, aeronautics and banking industries. Billie holds a BSBA accounting, MBA finance, MA international management as well as the Business Analyst and Software Project Management certificates from the Cockrell School of Engineering at the University of Texas at Austin.