Latest news with #standarddeduction
Yahoo
11 hours ago
- Business
- Yahoo
New ‘bonus' tax deduction up to $6,000 could be on the way for those age 65 or older
If the massive tax package currently being debated in Congress becomes law, Americans who are 65 and older will enjoy a hefty new tax break: An additional $4,000 to $6,000 drop in taxable income, thanks to a new additional standard deduction. The House version of the tax bill calls for a $4,000 additional deduction, while the Senate version ramps that up to $6,000. The House approved its version in May, and the Senate is working now to bring its version to a vote. Then the two chambers will need to massage each bill into one cohesive whole, before sending it to President Donald Trump for signature. The potential bad news for taxpayers? There would be income limits, with the value of the tax break phasing out starting at a modified adjusted gross income of $75,000 for single filers and $150,000 for married-filing-jointly filers. This new tax break would be temporary, in effect only from 2025 through 2028. 'The bottom line is if you're in the modified adjusted gross income that gets this, it will save you on taxes,' says Mark Gallegos, a CPA and tax partner at Porte Brown LLC in Chicago. This would put 'more money back in people's pockets, and I think that's the whole point,' he says. House version Senate version Additional standard deduction $4,000 $6,000 Income limits Starts to phase out at income of $75,000 for single filers, $150,000 for couples Starts to phase out at income of $75,000 for single filers, $150,000 for couples Permanent or temporary? Temporary; in effect from 2025 through 2028 Temporary; in effect from 2025 through 2028 Available to taxpayers who itemize? Yes Yes It seems likely that this new tax break would be added on top of the existing additional standard deduction that Americans who are 65 and older already enjoy. In 2025, that additional standard deduction is worth $2,000 for a single filer aged 65 or older, or $3,200 for a married-filing-jointly couple if both spouses are age 65 or older (if just one spouse is 65+, the additional deduction is $1,600). Neither the House nor Senate proposals are clear about whether the new tax break would be added on to that existing tax perk, says Mark Luscombe, a CPA and principal analyst for Wolters Kluwer Tax & Accounting in Chicago. Nothing indicates that it would replace the existing additional deduction, 'so my interpretation is it's in addition,' Luscombe says. Keep in mind, too, that both bills propose an increase to the existing standard deduction that's available to all taxpayers. This gets a bit complicated, so let's back up a bit: The Tax Cuts and Jobs Act essentially doubled the value of the standard deduction, effective from 2018 through 2025. Now, both the House and Senate tax bills would make that tax change permanent. On top of that, each of the bills would give the standard deduction a slight bump: The House bill would temporarily increase the standard deduction by $2,000 for joint filers, $1,500 for head of household filers and $1,000 for single filers and those married filing separately, effective 2025 through 2028. The Senate bill would permanently increase the standard deduction by those same amounts, starting in 2026. So if one of these bills becomes law, then taxpayers aged 65 or older would enjoy the slightly higher standard deduction, plus their regular additional standard deduction, plus the new additional standard deduction. Here's an example of how these tax breaks would work, assuming the Senate's $6,000 version becomes law and assuming the new tax break is on top of the existing additional deduction. Example based on Senate's proposed bill A 70-year-old single taxpayer with taxable income of $50,000 in 2026 likely would qualify for these deductions: $16,000 standard deduction $2,000 existing additional standard deduction $6,000 new additional standard deduction That adds up to a $24,000 total deduction. Thus, $50,000 minus $24,000 = $26,000 taxable income. That reduction in taxable income would drop the taxpayer into the 12 percent tax bracket, from the 22 percent tax bracket. Learn more: Current tax brackets and federal income tax rates This new additional standard deduction would be in lieu of tax-free Social Security benefits for retirees, an idea touted by Trump on the campaign trail. That's because changing how Social Security benefits are taxed would be complex — and costly, reducing government revenues by as much as $1.5 trillion over 10 years, according to an estimate by the nonpartisan Tax Policy Center. Adding an extra standard deduction is simpler and cheaper. The $4,000 proposal in the House bill would reduce government revenue by an estimated $66 billion over 10 years, according to a report from the Bipartisan Policy Center. Also, the proposed tax break would help out lower-income taxpayers more than ending taxes on Social Security benefits would have, Luscombe says. For one, Social Security beneficiaries with lower incomes generally don't owe taxes on their benefits — that's a fate that hits higher-income beneficiaries. Plus, the proposed new tax break – both the Senate and House versions — has income limits that would skew the benefit toward lower-income taxpayers. 'This proposal has a phase-out, which is unusual for a standard deduction,' Luscombe says. 'That would tend to focus it on lower- to middle-income taxpayers.' Also unusual for a standard deduction? This one would be available to people who itemize their deductions. Still, 'very few people at these income levels are itemizing,' Luscombe says. 'Only about 10 percent of taxpayers currently itemize, even with the current standard deduction.' Learn more: How to choose between claiming the standard deduction and itemizing
Yahoo
13 hours ago
- Business
- Yahoo
New charitable giving tax deduction worth up to $2,000 could soon be on the way for millions of filers
Taxpayers who donate to the causes that are close to their hearts may soon have a new reason to celebrate — and to give: The Senate's version of the 'big, beautiful' tax bill includes a valuable new tax deduction for qualified charitable contributions, worth up to $1,000 for single filers and $2,000 for married filing jointly taxpayers. The exciting part is this: This tax deduction would be available to taxpayers who claim the standard deduction — you wouldn't have to itemize to benefit. That could be a big boon for taxpayers who like to support important causes, as well as the charitable organizations to which they give. Keep in mind that this tax deduction is currently in a draft version of the Senate's tax bill, which will eventually need to be melded with the House's version — and there are plenty of reasons why that could prove challenging. Learn more: Trump's tax plan: Senate and House versions of 'big, beautiful' bill headed for a clash On top of all that, while the House version of the bill also offers an above-the-line deduction for charitable contributions (which means you don't have to itemize to claim it), it's worth just $150 for single filers and $300 for married filing jointly couples. Plus the House's version of this tax break is temporary, in effect from 2025 through 2028, while the Senate's more generous version would be permanent starting in 2026. There's a lot we don't know right now, including if or when the tax bill will pass and, if it does, which of these two charitable deductions will be in it, if either of them are. Learn more: 5 tax deductions you can claim now without itemizing Currently, the only way to secure a tax benefit for making a charitable contribution is to itemize your deductions. (Remember, taxpayers always must choose between claiming the standard deduction and itemizing — you want to choose whichever is larger.) That means that these days, it tends to be wealthier taxpayers who enjoy a federal tax benefit for their charitable contributions. In 2020, 64 percent of tax returns that reported adjusted gross income (AGI) of $500,000 or more claimed itemized deductions. That compares with just 11 percent of returns with $50,000 to $100,000 of AGI and 2 percent of tax returns with less than $30,000 in AGI, according to a report by the Tax Policy Center, a nonpartisan, nonprofit research organization. There was a time, briefly, when you could claim a tax deduction for your charitable donations even if you didn't itemize your deductions. The 2020 Coronavirus Aid, Relief and Economic Security (CARES) Act included an above-the-line tax deduction for charitable giving worth $300 (a $600 tax break for married filing jointly filers was added for 2021). But that popular tax break existed only for 2020 and 2021. The current tax bill being debated by Congress seems to recognize that getting a tax break for giving to causes — without having to itemize — would help out middle-income taxpayers. And if one of these tax breaks becomes law, it could benefit U.S. taxpayers as well as the charities to which they donate, because it would at least somewhat reverse what happened after the Tax Cuts and Jobs Act (TCJA) went into effect in 2018. Learn more: Trump and the expiration of the TCJA: Here's what's next for your tax bill The TCJA nearly doubled the standard deduction, which made it much less beneficial for people to itemize their deductions. In 2018, about 23 million taxpayers switched from itemizing to claiming the standard deduction, and those taxpayers donated about $880 less, on average, than they otherwise would have that year, according to a 2024 paper by the National Bureau of Economic Research, a private, nonprofit research organization. Overall, the TCJA 'decreased charitable giving by about $20 billion annually,' the paper says. Still, other data suggests that, after the initial drop, charitable donations increased in later years — though that rise in giving was likely concentrated among wealthy people who still find it beneficial to itemize their deductions, according to a report by the Bipartisan Policy Center, a not-for-profit, nonpartisan research organization. The TCJA, the Center said, may have concentrated 'tax incentives for charitable giving more among the wealthy.' Learn more: These 9 states have no income tax — that doesn't always mean you'll save money Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Forbes
3 days ago
- Business
- Forbes
6 Above-The-Line Tax Deductions For Those Who Claim Standard Deduction
When you file your taxes, one of the biggest decisions is whether you should claim the standard deduction or go through the chore of itemizing your deductions. With the standard deduction of $15,000 for individuals and $30,000 for married couples filing jointly, itemizing requires a significant sum of deductions to make it worth it. But did you know there are 'above-the-line' deductions that you can claim even if you claim the standard deduction? Many of these deductions are claimed on Schedule 1 of your Form 1040, which can be a guide to finding these above-the-line deductions. Here are a few of the more uncommon ones: If you had to withdraw money early from a certificate of deposit (CD), you likely paid a penalty depending on the terms of the CD. For many CDs, you pay the equivalent of 6-months or more of interest back to the bank if you have to access your funds early. Fortunately, this is deductible on Line 18 - Penalty on early withdrawal of savings. If you paid student loan interest, you could get a tax break on up to $2,500 of payments as long as you qualify. There are income restrictions. You do not qualify if you have income over $80,000 for single filers and $165,000 for those married filing jointly. This can be found one Line 21 - Student loan interest deduction. If you were divorced before the start of 2019, your alimony payments are deductible from your income on Schedule 1 of your Form 1040, Line 19a - Alimony paid. If your agreement was established amended in or after 2019, unfortunately it will no longer be deductible. If you are a teacher, you can deduct up to $300 in unreimbursed expenses spent in your classroom. You must have worked at least 900 hours at a qualifying elementary or secondary school. This can be found on Line 11 - Educator expenses. If you are an active-duty service member and had qualifying moving expenses that were not reimbursed, you can claim them on Line 14 - Moving expenses for members of the Armed Forces. It covers household items, housing, storage and travel but does not include meals.
