5 Tax Deductions Taxpayers Can Use With the Standard Deduction

As you think about your personal tax returns this year, you may wonder if it's worth itemizing deductions—and if there are any deductions available if you choose to take the standard deduction.

Like many Americans, you might find that taking the standard deduction is often easier and comes with a larger amount back than when itemizing deductions. This is due in large part to the passage of the Tax Cuts and Jobs Act, or TCJA, which became effective with the 2018 tax year. Prior to this law, the percentage of taxpayers who itemized was approximately 37%. According to the IRS, 11% of taxpayers elected to itemize deductions since 2018—meaning the remaining 89% opted to use the standard deduction.

Why most people opt for standard deductions

Fewer taxpayers itemized after TCJA largely because state and local tax deductions were capped at $10,000, while the standard deduction doubled and was indexed for inflation. By using the standard deduction and not itemizing, taxpayers weren't getting a tax benefit for things like mortgage interest, charitable contributions and qualifying healthcare expenses. Taxpayers would only itemize if the combination of state and local taxes, mortgage interest, donations and expenses was greater than the allowed standard deduction.

However, above-the-line deductions are allowed for certain taxpayers even if they use the standard deduction. These types of deductions are allowed in calculating federal adjusted gross income, or AGI, while itemized deductions and the standard deduction are subtracted after AGI when calculating a taxpayer's taxable income. Above-the-line deductions are considered more valuable because other deductions and credits have limits based on AGI. The lower your AGI, the more likely you'll be able to use other deductions and credits without being subject to a phase out.

Above-the-line deductions to consider

As you're preparing to file your taxes this year, take a look at some of these above-the-line deductions even if you use the standard deduction. Each deduction covered below has limits on its use and may not be available to all taxpayers. If eligible, the following deductions appear in the Adjustments to Income section (Part II) of Schedule 1 to the 2022 Form 1040.

1 IRA contributions

If you use the standard deduction, you can still take an above-the-line deduction for contributions to a traditional IRA. However, a deductible IRA contribution is only allowed if neither you nor your spouse participates in an employer-sponsored retirement plan—and in certain circumstances, if your modified adjusted gross income, or MAGI, doesn't exceed a certain threshold. For 2022, if neither you nor your spouse are covered by an employer's retirement plan, you can take the full contribution amount as a deduction regardless of the amount of your MAGI. The full contribution amount for 2022 is $6,000, or $7,000 if you're 50 or older.

If you're married and filing jointly and your spouse is covered by an employer plan, you can only take the full contribution amount listed above as a deduction if your combined MAGI is $204,000 or less. There's a partial deduction available if your MAGI is between $204,001 and $214,000, while there's no deduction available for a MAGI of $214,001 and above. You can still contribute to your traditional IRA, but a tax deduction won't be available if you don't meet the retirement plan participation and MAGI tests.

If you're single or married but filing separately, the participation and MAGI test may have different thresholds.

2 Health savings accounts

If you're covered by a high deductible health plan, or HDHP, you can deduct amounts you contribute to a health savings account, or HSA. In 2022, you as an individual under the age of 55 may contribute and deduct up to $3,650, or $7,300 for families with an HDHP. If you were 55 or older at the end of 2022, your limits increase by $1,000 to $4,650 for self-only coverage and $8,300 for family coverage.

Contribution amounts are limited to amounts you personally contribute. Deductions aren't allowed for employer contributions made on your behalf.

3 Contributions to SEP, SIMPLE and qualified plans

If you're self-employed, you can take deductions for contributions to certain retirement plans. These deductions have the potential to be significant, so don't overlook them. Note that these deductions aren't available to taxpayers who are considered employees.

A simplified employee pension, or SEP, plan is a popular choice for self-employed individuals that lets you deduct your contributions in your personal tax return. If you're contributing to a SEP for a company that you own, your deduction is based on your net earnings from self-employment. The maximum deduction for contributions to your SEP is determined by multiplying your net earnings—subject to some adjustments—by the contribution rate chosen in your plan document. The overall maximum you can contribute to a SEP for 2022 is $61,000, but your actual deduction is based on your adjusted net earnings.

Contributions to SIMPLE and other qualified plans also vary based on net income and other statutory limitations.

Ultimately, tax deductions are available for self-employed individuals making contributions to certain types of retirement plans. If you're self-employed, consider creating one of these types of retirement plans because they can provide a current tax benefit in addition to retirement savings.

4 Other self-employed deductions

Self-employed taxpayers can also take advantage of other deductions—including a portion of Social Security and Medicare taxes, as well as health insurance premiums.

Business owners are responsible for paying employee and employer portions of Social Security and Medicare taxes. To help ease the double tax burden, owners are allowed an above-the-line deduction for approximately half of the self-employment taxes paid.

Self-employed individuals can also deduct health insurance premiums they paid for themselves and their dependents. This deduction, like the retirement plan and self-employment tax deductions, is considered an above-the-line deduction.

5 Other above-the-line deductions

Other common above-the-line expenses available using the standard deduction include alimony, student loan interest, unreimbursed educator expenses and penalties for early withdrawal of savings. It's important to note that you must meet the appropriate filing timeline, AGI and other thresholds to qualify for these.

The bottom line

Recent changes to the standard deduction amount—along with restrictions on some itemized deductions—have altered options when it comes to filing tax returns. However, even though you may continue to choose the standard deduction, these above-the-line deductions may still be available to you. If you feel like you qualify, discuss these options with a trusted tax professional.