10 tax deductions you don't need to be wealthy to claim

Not all tax deductions are created equal. Some particularly attractive ones aren’t subject to the income-related phase-out rules that affect higher-income taxpayers.

But you don’t have to be a high earner to get in on some other worthwhile deductions. Just focus on more than a dozen you can claim on the first page of your tax return. These are called “adjustments to income” because they’re deducted directly from your gross income. They’re also called “above-the-line deductions” because you don’t have to itemize your deductions to claim them.

Here are 10 of the most commonly claimed of these above-the-line deductions:

Educator expenses: If you’re a teacher and you’ve paid for classroom supplies out of your own pocket, you can claim those expenses as a tax deduction. You can claim up to $250 of your costs for supplies, materials, books, software, etc. If your spouse is also an educator, you can claim up to $500 of out-of-pocket educator expenses on a joint return. 

If you paid for classroom supplies over these limits, the excess costs can be deducted as an employee business expense on Schedule A as a miscellaneous itemized deduction. Unfortunately, only the amount exceeding 2 percent of your adjusted gross income (AGI) is deductible.

Military reservists’ travel expenses: If you were a reservist of the armed forces in 2016 and you incurred travel expenses connected with your performance of reserve services, you can deduct them regardless of your income. Eligible expenses must be for travel more than 100 miles away from your home, and you’re limited to the federal per diem rate for lodging, meals and incidentals. Also applicable are limits such as the standard mileage rate for car expenses and any parking, transportation fees and tolls. You’ll have to also complete and attach Form 2106 to your tax return.

Health savings account deduction: If you were enrolled in one of the increasingly common high-deductible health insurance plans and you contributed to a health savings account (HSA), you can claim these contributions as an adjustment to income. The maximum HSA contribution for 2016 tax returns is $3,350 for individual coverage and $6,750 for family coverage. If you’re 55 or older, the limits go up by $1,000 more. 

You have until April 18 to set up an HSA and make these contributions. Unlike an IRA, you don’t need earned income to make an HSA contribution. You can claim this deduction on Form 8889.    

Moving expenses: If you moved either to take a new job or because your current job was relocated, your out-of-pocket costs can be claimed as an adjustment to income. Your move must meet time and distance requirements. For example, the new work location must be at least 50 miles away from your old home. The tests that apply and expenses that qualify are laid out on Form 3903, which must also be completed and included with your tax return.

Self-employment tax: If you were self-employed last year and earned a net profit, you’ll owe a 15.3 percent self-employment tax on the adjusted amount of this profit (on up to $118,500 of net profit). For example, if you earned a net profit of $75,000, this SE tax would amount to about $11,475. 

The good news is that 50 percent of this tax is deductible. In this example, you can claim $5,738 as an adjustment to your AGI. 

Self-employed SEP, SIMPLE and qualified retirement plans: If you’re self-employed, a business owner or sole proprietor, you can set up a SEP IRA or SIMPLE plan and contribute 20 percent of your self-employed income (or 25 percent of an employee’s compensation), up to $53,00. And like the HSA above, you still have time to do this: The account can be set up and the contribution made by the filing date of your return. 

If you had already set up a self-employed 401(k) profit-sharing plan (before Jan. 1, 2017), you can contribute $18,000 ($24,000 if you’re 50 or older), plus an additional 20 percent of your net profit, and claim these contributions as an above-the-line deduction.

Self-employed health insurance deduction: If you’re self-employed and you pay premiums for medical, dental and even qualifying long-term care insurance for you and your family, you can claim these costs as an adjustment to income. 

IRA deduction: If you aren’t covered by a retirement plan at work or through your self-employment and you have income from earnings, you can make a deductible contribution to an IRA of 100 percent of your earned income, up to $5,500 ($6,500 if you’re 50 or older). The IRA can be set up and the contribution made by the filing date of your tax return.  

Student loan interest: You can deduct up to $2,500 of the student loan interest you’ve paid. Like all the deductions listed here, this one can be claimed even if you don’t itemize deductions. If you’re the student but your parents make the payments on your loans, you can still claim this deduction if you’re liable for the loan and your parents can’t claim you as a dependent.

Tuition and fees: You can claim up to $4,000 in qualifying tuition and fees you’ve paid for you, your spouse or your dependent student. The student only needs to be enrolled part-time. For 2016, this deduction begins to be reduced for married tax filers with AGI over $130,000 ($65,000 for single and other filers).

If you’re married and your AGI is above $160,000 ($80,000 for singles), this deduction phases out completely. Unless Congress extends it, the last year you can claim the tuition and fees deduction is 2016.

  • Ray Martin

    View all articles by Ray Martin on CBS MoneyWatch»
    Ray Martin has been a practicing financial advisor since 1986, providing financial guidance and advice to individuals. He has appeared regularly as a contributor on the CBS Early Show, CBS NewsPath, as a columnist on CBS Moneywatch.com and on NBC-TV's morning newscast TODAY. He has also appeared on the Oprah Winfrey Show and is the author of two books.