Top 4 Deductions without Itemizing
By Tim Frye
As a tax preparer you have to be able to adapt and attach a certain level of elasticity to your client’s current situation. The last half decade has been pretty rough on taxpayers, with the real estate bubble burst, the economy tanking, wars continuing for perpetuity, etc. So it goes without saying that tax situations have changed drastically for many people. For example, let’s say you have a client who lost their home to a foreclosure, and now pays rent. This is an individual who used to employ the long form due to the large sum deduction they received for mortage interest to boost them over their standard deduction hump. With that no longer in existence, this client is now reduced to using the short form, and loses many of the deduction options that were previously available to them. So in these situations it is still vital for you to try and get them as many deductions as you can, even when they are not utilizing the Schedule A. Lets take a look at the top four deductions that you can access for your client without them itemizing.
For those of your clients who have a side business and still work full time as an employee, they may have incurred business losses for the year. You must be prudent when helping your client with attaching business loss to a tax return, especially if they are taking a loss for more than two consecutive years. The IRS will quickly grow tired of seeing a claim of loss year after year, and this will increase your clients chance of future audit. With all that said a substantial business loss can provide a huge deduction against taxable income without having to attach a Schedule A.
Student Loan Interest
For those of your clients who are actually paying their loans off and are one of the few people who haven’t defaulted on them, they can access an above the line deduction for the interest paid on the loan. The adjustment is available to any taxpayer who has paid student loan interest for the tax year in question. Paying off a student loan is respectable and challenging feat for sure endevor, and this client will definitely appreciate some level of tax value from paying off their loan.
401ks and IRAs
When you put money into retirement, such as a 401k or a Traditional IRA, you can receive an “Above the line deduction” for the contribution, which will lower taxable income and keep your tax liability at more reasonable levels. Tax deductible retirment contributions are a great way to lower your tax without having to fill out a Schedule A.
Tuition and Fees Deduction
The Adjustment for your client’s higher education costs can climb up to as high as $4,000. The deduction has ceiling phase outs for higher earning filers, so be sure to check your facts before you tell your client the adjustment is available to them.
Self-employed Health Insurance
Business owners can deduct the full 100% of expenses incurred for health insurance. The deduction is available for payments made on behalf of the self-employed taxpayer, and his or her spouse and dependents as well.
As we have seen, there are some options for deductions even if a taxpayer does not have the ability to itemize. So even though a short form on it’s face may seem very simple and easy to complete, it would be wise for you to take your time and evaluate the entirety of your client’s situations before you wrap it up.