Every tax season, you promise yourself you will finally understand the various tax deductions available and how you can take advantage of them and save money. But once you start a little research, all of the different terms for deductions, from self-employed deductions to itemized deductions to the standard deduction, start to blur together. So, what’s the difference between these deductions and which ones are actually available to you?
Self-Employed Itemized Deductions, aka Schedule C
There’s a lot of talk every tax season about itemized deductions, but there are two types of itemized deductions, and many people often confuse them. Self-employed itemized deductions are related to the expenses you may have throughout the year related to your work.
In order to be able to claim these itemized deductions:
- You must be self-employed, in other words, you are not a full-time employee at the company or companies you work for.
- At the end of every tax year, your income must be reported on a 1099-NEC. If you work from home but receive a W-2 tax form instead of a 1099-NEC, you are not eligible for self-employed itemized deductions.
- If your income is not reported on a W-2 or a 1099-NEC and you are self-reporting your yearly income, you can still claim self-employed deductions.
Some examples of these deductions are home office deductions, vehicle expenses related specifically to your self-employment, office supplies, computer equipment, tools you use for work, and work-related travel expenses. You can find a more comprehensive list on our blog post about self-employed expense categories.
You report these self-employed expenses on schedule C of your federal tax return, so they are often referred to as schedule C deductions.
Personal Itemized Deductions
How are personal itemized deductions different from self-employed itemized deductions? Personal itemized deductions are not related to your work. These are deductions that you can take from your gross income if they apply to you.
Personal itemized deductions can include:
- The mortgage interest you paid throughout the year. This would be reported by your mortgage lender on a 1098 tax form.
- Property taxes that you paid throughout the year. This is sometimes reported on the same 1098 tax form as your mortgage interest paid, but you sometimes have to refer to your property tax bill.
- Any charitable contributions you made throughout the year. This includes both cash contributions and/or the fair market value of a donation. There are limits on the amounts of charitable contributions you can deduct.
- Medical expenses that are not covered by your insurance and that you pay out-of-pocket. You can claim these as long as they exceed 7.5% of your adjusted gross income.
The important thing to keep in mind about personalized itemized deductions is that you can only take them if the sum of all of your personal deductions is greater than the standard deduction for the year. And remember, these personalized deductions have nothing to do with schedule C self-employed deductions, though there may be some overlap.
So, What Is a Standard Deduction?
If you don’t have any personal itemized deductions to take, the IRS gives you a standard deduction for the year. The standard deduction is based on your filing status and changes from year to year.
For example, for the 2024 tax season, the standard deduction for the following tax filing statuses will be:
- Single: $14,600
- Head of Household: $21,900
- Married Filing Jointly: $29,200
- Married Filing Separately: $14,600
In other words, if you are filing single in 2024 and your personalized itemized deductions add up to less than $14,600, you will get the standard deduction for filing single of $14,600.
The world of deductions can get confusing, but that’s why we’re here. The tax preparers at Moore & Paquette Tax Group can help you figure out which deductions you can actually take to help you save money on your taxes.
Please note that tax laws change often, and we recommend that you to reach out to one of our tax preparers for the most up to date information.