When you’re just starting out in a new career, every dollar counts. Although the April 15th tax deadline has passed, you’ll want to make sure you’re making the most of the benefits you’re entitled to as you plan for the year ahead. In this article, we’ll examine some of the important tax deductions that are available to young professionals.
“Above-the-line” deductions refers to tax deductions that you can take without having to itemize. That’s an important benefit, since many taxpayers don’t have enough itemizable deductions to take advantage of them. The following costs can be excluded from your taxable income to reduce your tax obligation:
If your employer offers benefits like a 401(k) retirement plan or health savings account (HSA), the contributions you make to these plans can reduce your tax liability. If possible, ensure that you’re making the maximum allowable contributions to these tax-advantaged savings vehicles each year.
When your contributions are made through your employer, your employer excludes your contributions from the taxable income they report on your W-2. As a result, they aren’t reported as deductions at tax time. If your employer doesn’t offer an HSA, it’s possible to open one yourself, but only if you’re enrolled in a high-deductible health insurance plan.
Even if your employer doesn’t offer a 401(k), you can still reduce your taxes by contributing to an individual retirement account (IRA). However, the maximum contributions are significantly lower. The limit for IRA contributions is $7,000 in 2024. For many workers, it’s possible to contribute to both a 401(k) and an IRA; however, income limits apply. For 2024, the IRA contribution limits for single filers who also have a 401(k) phase out between $77,000 and $87,000. To claim your IRA deduction, use Schedule 1.
If you have student loans, you can deduct the interest you paid during the year, up to a limit of $2,500. Income limits also apply to this deduction, which phases out between $80,000 and $95,000 for single filers and between $165,000 and $195,000 for married taxpayers who file jointly for 2024. The student loan interest deduction also appears on Schedule 1.
If your employer provides assistance with your student loan payments, up to $5,250 of that assistance can be excluded from your income. This limit, however, applies to a combination of student loan and tuition assistance. As with 401(k) contributions, your employer should exclude this compensation from your W-2 earnings, so it’s not reported as a deduction on your tax return.
If you’re a teacher, school counselor, aide, or principal who works at least 900 hours in a school in 2024, you can claim up to a $300 deduction for certain work-related expenses. These include classroom books, equipment, services, and supplies as well as professional development courses.
If the total of your itemizable deductions exceeds the standard deduction ($13,850 for single filers or $27,700 for joint returns), then you can further reduce your taxable income with the deductions listed below. To itemize your tax deductions, use Schedule A.
The state and local tax (SALT) deduction allows taxpayers to deduct up to $10,000 in property taxes as well as either sales or income taxes levied by states or local governments.
Medical costs can be listed as itemized deductions only if they exceed 7.5% of your adjusted gross income. If you have large medical expenses in 2024, it’s worth taking the time to total them up to see if they reach the threshold for this deduction.
The interest that homeowners pay on their mortgage is an itemizable deduction. If you purchased (or will purchase) a home in 2024, any points that were charged to reduce your interest rate can be included in the mortgage interest deduction. To qualify, the loan must be secured by your primary residence or second home. If you rent out part of the home or rent out the home for part of the year, this may limit your ability to take the deduction.
You can itemize gifts of cash or other property as well as out-of-pocket expenses you incur while volunteering for qualified charitable organizations. You cannot, however, deduct the cost of time that you spend in volunteer activities.
By taking the time to familiarize yourself with tax deductions, you can be alert to these opportunities for tax savings. It’s important to keep records of all these expenses so you can report accurate numbers on your return and provide evidence of your expenses in case of an audit.
The best way to ensure you’re claiming all the tax benefits you’re entitled to is to build a relationship with a qualified tax professional. At Stable Rock, we’ll work with you to ensure you’re claiming all the deductions and credits the law allows.
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