Tax Deductions

Lesson

In this lesson, you’ll learn how tax deductions can save you money on your taxes. There will be a short quiz at the end of this lesson to make sure you understand the material before moving onto the next lesson.

A tax deduction reduces your taxable income by the amount of the deduction.

Standard Deduction

All tax payers, regardless of tax bracket, are allowed to claim a standard deduction:

  • Single filers can claim a standard deduction of $12,950
  • Single filers who are over 65 or blind can claim an additional $1750
  • Single filers who are over 65 and blind can claim an additional $3500
  • Heads of households can claim a standard deduction of $19,400
  • Heads of households who are over 65 or blind can claim an additional $1750
  • Heads of households who are 65 and blind can claim an additional $3500
  • Married filers can claim a standard deduction of $25590
  • Married couples with one spouse who is over 65 or blind can claim an additional $1400
  • Married couples with one spouse who is over 65 and blind can claim an additional $2800
  • Married couples with two spouses who are over 65 or blind can claim an additional $2800
  • Married couples with two spouses who are over 65 and blind can claim an additional $5600

Standard Deduction Example

Jack and Jill are married and file a joint return. Together, they make $100,000 a year. Because Jill is blind, they’re able to claim a standard deduction of $25590, and an additional deduction of $1400. This reduces their taxable income to $73,310. Jack and Jill will now be charged at the 10 and 12 percent tax rates:

  • 10 percent of their first $20,550 or $2,055
  • 12 percent of their next $52,760 or $6,331.20
  • Total: $8,386.20

Itemized Deductions

Tax payers with qualifying expenses higher than the standard deduction may benefit from itemizing (adding up and reporting their deductible expenses.

Deductible expenses may include:

  • Healthcare costs – including medical bills, dental bills, and prescription drugs.
  • Property taxes
  • Mortgage interest
  • Charitable contributions

There may be minimum or maximum amounts you’re allowed to deduct for each category every year. Some types of expenses may also fall into multiple categories, but you’re not allowed to deduct the same expense more than once.

Itemized Deductions Example

Jack and Jill are married and file a joint return. Together, they make $100,000 a year. Because Jill is blind, they’re able to claim a standard deduction of $25590, and an additional deduction of $1400. This reduces their taxable income to $73,310. Jack and Jill keep good records, though, and know that they have enough deductible expenses to file an itemized return:

  • Healthcare costs: $2,500
  • Property taxes: $3,000
  • Mortgage interest: $20,000
  • Charitable contributions: $10,000
  • Total: $35,500

This reduces their taxable income to $64,500 and they will be charged at the 10 and 12 percent tax rates:

  • 10 percent of their first $20,550 or $2,055
  • 12 percent of their next $43,950 or $5,274
                  • Total: $7,239

Quiz

Lesson Content