A deduction is used to reduce gross income in arriving at taxable income.  A deduction is different from a tax credit in that deductions reduce income and credits reduce tax (dollar for dollar).  Understanding your sources of income will help you understand why a deduction applies and why certain deductions do not apply to your situation.  This page covers “adjustments to gross income” and “itemized deductions”.

Adjustments to Income

After including all sources of income on your Form 1040, certain deductions are available to arrive at adjusted gross income (AGI).  Below is a list of these deductions with a brief description of each and related forms and publication that can be used to determine which deduction you may be able to take.

• Medical Savings Account – use Form 8853, Archer MSAs and Long-Term Care Insurance Contracts to report contributions to a MSA; compute your MSA deduction; report taxable payments from long-term care insurance contracts; report distributions from a MSA; and report taxable accelerated death benefits from a life insurance policy.
• Educator Expenses – a deduction is allowed for unreimbursed trade or business expenses paid for qualified expenses which include amounts paid for participation in professional development courses, books, supplies, computer equipment, other equipment, and supplementary materials you used in your classroom.  Eligible educators include elementary and secondary school teachers, instructors, counselors, principals, or aides who work at least 900 hours during a school year.  The deduction is $250 per educator.
• Expenses for Reservists, Performing Artists, and Qualifying Government Employees – use Form 2106, Employee Business Expenses to compute and deduct ordinary and necessary job expenses.  This deduction is available for expenses paid for travel, lodging, transportation (including incidental costs such as tips), gifts, education, and trade publications.  The standard meal allowance can be claimed for daily meals and incidental expenses while away from home.  Total expenses should be reduced by reimbursements received from the person employing you.  See Pub. 463, Travel, Gift, and Care Expenses and Pub. 529, Miscellaneous Deductions.
• Health Savings Account – use Form 8889, Health Savings Account to report contributions to a HSA, figure your HSA deduction, report distributions from a HSA.  See Pub. 502, Medical and Dental Expenses.
• Moving Expenses – beginning in 2018, this deduction is only available to members of the Armed Forces on active duty and, due to a military order, you move because of a permanent change of station.  Use Form 3903, Moving Expenses to compute your deduction.
• Self-employment Taxes – a deduction is allowed to self-employed individuals for the employer equivalent portion of self-employment tax.  This tax is paid if there is $400 or more in net earnings from self-employment.  Use Schedule C, Profit or Loss from a Business to compute net earnings and use Schedule SE, Self-employment Tax to compute the amount of the self-employment tax and self-employment tax deduction.  Self-employed individuals can make estimated tax payments each quarter during the year then use these payments to pay the self-employment tax.  See Pub. 505, Tax Withholding and Estimated Tax for more information.
• Self-employed Health Insurance – a deduction is allowed to self-employed individuals for the cost of health insurance under Section 2042 of the Small Business Jobs Act a deduction.  This deduction is taken into account in calculating net earnings from self-employment.  See the Instruction Booklet for Form 1040, Schedule SE.
• Penalty on Early Withdrawal of Savings or CD – use the information from Form 1099-INT, Interest Income to claim this deduction.  If using a computer software to prepare your taxes, enter the information on Form 1099-INT and the deduction will auto populate.
• Alimony – a deduction is not allowed for alimony or separate maintenance payments made under a divorce decree or separation agreement executed after 2018 or before 2019 that is later modified to repeal the tax deduction.  See Pub. 504, Divorced or Separated Individuals for more information.
• IRA Deduction – individuals with taxable compensation such as wages, salaries, commissions, tips, bonuses, or net income from self-employment are allowed a deduction for contributions to an Individual Retirement Account (IRA) or Roth IRA.  Compensation does not include pension and annuity income or deferred compensation.  Use the worksheet in the 1040 Instruction Booklet or Pub. 590-A Contributions to IRAs to compute your deduction.
• Student Loan Interest – a deduction is allowed for individuals who pay interest on a qualified student loan.  To qualify, you must have been obligated to pay interest on a qualified student loan, cannot file married filing separate, must meet the modified adjusted gross income limit, and not be claimed as a dependent on someone else’s tax return.  A qualified student loan is one that is used to pay qualified higher education expenses for you, your spouse, or other individual who was your dependent when you took out the loan for education that was produced during an academic period for an eligible student. See Pub. 970, Tax Benefits for Education for more information.
• Tuition and Fees – deduction is available if you, your spouse, or a dependent you claim on your tax return was a student enrolled at or attending an eligible education institution.  This deduction is not available for any student if you or anyone else claims the American Opportunity Tax Credit or Lifetime Learning Tax Credit in the year qualified education expenses were paid.  Qualified education expenses include tuition and fees required for enrollment or attendance at an eligible educational institution.  Form 1098-T, Tuition Statement must be received to claim this deduction.  Use Form 8917, Tuition and Fees Deduction to compute this deduction.
• Domestic Production – this deduction is not available for tax years beginning after 2017.

An individual may be able to deduct one or more of these deductions.  Review the applicable forms and schedule with the related publication to determine which deduction(s) you qualify for.

Itemized deductions

Individuals have the option to claim the standard deduction or itemize deductions on their Form 1040.  Only one deduction can be claimed, not both, and the decision is based on which deduction is more, the standard deduction or the total of the itemized deductions.  The standard deduction is claimed right on Form 1040 and itemized deductions are claimed using Schedule A, Itemized Deductions.  Generally, the individual claiming itemized deductions must maintain their own records.  In some cases an information return is provided as proof of the expense, for example for real estate taxes, mortgage interest, and certain charitable contributions.  Below is a brief description of each itemized deduction.

Medical and Dental Expenses

• costs paid for yourself, spouse, or dependent for qualified expenses are deductible on Schedule A, Itemized Deductions.  The deduction applies to costs paid for (i) diagnosis, treatment, or prevention of disease; (ii) prescription drugs and insulin; (iii) insurance premium for policies that cover medical care; (iv) some long-term care insurance costs; and (v) related travel costs to and from for related medical and dental expenses.  Costs reimbursed by insurance or other sources generally do not qualify.
• See Pub. 969, Health Savings Accounts and Other Tax Favored Health      Plans.

Taxes You Paid

• State and local income taxes or general sales taxes paid to qualify as an itemized deduction on Schedule A.  State and local income taxes can be found on Forms W-2, 1099-MISC, 1099-R, 1099-G, and 1099-NEC.  If you worked for more than one employer and/or if you received more than one of these forms, add the state and local taxes for all such forms received.  Also, include estimated state and local income taxes paid during the tax year.  Do not deduct (i) penalties and interest applied to late payment of these taxes or (ii) state and local taxes deducted on other forms such as Schedule C, E, and F, as these amounts are not deductible.
• General sales taxes paid for clothing, food, and recreational vehicles are  deductible in lieu of state and local income taxes.  Recreational vehicles    include cars, motor cycles, motor homes, recreational vehicles, sport        utility vehicles, trucks, vans, and off road vehicles.  Actual general sales    taxes can be claimed or the Optional State Sales Tax Table can be used      to figure the tax deduction. To figure this deduction, use the State and Local General Sales Tax Deduction Worksheet or Sales Tax Deduction Calculator at irs.gov/salestax.
• Other Taxes paid to  foreign countries and generation skipping tax assessed on certain income distributions are also deductible.

Interest You Paid

• Personal interest on a qualified home mortgage loan is deductible if the proceeds from the loan is used to buy, build, or substantially improve the home securing the loan.  A home mortgage is any loan that is secured by your primary or secondary home and includes first mortgages, second mortgages, home equity loans, and refinanced mortgages.
• Points paid to borrow money and mortgage insurance premium are deductible as well.
• If two or more persons are liable for the mortgage loan, you can only deduct the amount you paid.
• Mortgage loans up to $1,000,0000 taken out on or before December 15, 2017 are used to compute the deduction and loans taken out after December 15, 2017 are used to compute the deduction for years 2018 and after.
• For more information see Pub. 936, Home Mortgage Interest Deduction
• Investment interest paid on money borrowed to acquire and hold investment property is deductible as a itemized deduction.  Investment property is property that produces investment income such as stocks, bonds, and Treasury bills and notes.  Use Form 4962, Investment Interest Expense Deduction to figure the deductible amount.  This form does not have to be filed if your investment interest expense is less than your investment income from interest and dividends minus qualified dividends or you have no other deductible investment expense.  For more information see the following publications:
• Pub. 550, Investment Income and Expenses
• Pub. 551 Basis of Assets
• Pub. 6781 Gains and Losses from Section 1256 Contracts and Straddles
• Pub. 8582 Passive Activity Loss Limitation
• Pub. 8824 Like-Kind Exchanges, Pub. 8949 Sales and Other Dispositions of Capital Assets.

Gifts to Charity

• Contributions or gifts to organizations that have been granted exempt status by the IRS are deductible.  You can confirm an organization’s exempt status by requesting proof from them or using the search tool at irs.gov/TEOs.
• Contributions can be cash, property, or out-of-pocket expenses paid to volunteer for a charitable organization with exempt status.  A written acknowledgement is needed for contributions and gifts of $250 or more; and contributions other than cash or check that are $500 or more should be reported on Form 8283, Non-cash contributions and attached to your return.
• Contributions that exceed the limit can be carried forward for five tax years.
• See Pub. 78, Cumulative List of Organizations for the annual list of charitable organizations that have received exempt status from the IRS and therefore eligible to receive tax exempt donations.
• See Pub. 526, Charitable Contributions to compute the amount of your charitable deduction for gifts of ordinary income property; gifts of capital gain property; and gifts of property that increased in value.

Casualty and Theft Losses

• Individuals can deduct personal casualty and left losses attributable to a federally declared disaster.  Casualty is the damage, destruction, or loss of property that results from a sudden, unexpected, or unusual identifiable event. The casualty can result from car accident, earthquake, fire, flood, mine cave-in, shipwreck, storm, vandalism, volcanic eruption and other similar events. No casual loss deduction is allowed for accidents, willful acts, or negligence.  Also, the deduction can only be claimed for losses that exceed gains or reimbursements such as from insurance proceeds.
• A disaster loss is a loss that is attributable to a federally declared                disaster that occurs in an area eligible for assistance pursuant to a              presidential declaration.  The loss can be claimed for personal-use            property, income producing property, and business activities.
• Use Form 4684, Casualties and Thefts to compute your deduction and      attach to your tax return.
• For more information see Pub. 547, Casualties, Disasters, and Thefts for  more information, Pub. 584, Casualty, Disaster, and Theft Losses              Workbook (for Personal Use Property), and Pub. 584-B, Business              Casualty, Disaster, Theft Loss Worksheet.