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Reducing Income With Tax Deductions

The amount of your income that’s actually taxable can be reduced by claiming tax deductions. For example, you can subtract the amount of a gift you made to a qualifying charity or nonprofit if you itemize your deductions.

This doesn’t mean that your total tax bill is reduced by that amount, but rather that your taxable income is reduced by this much—which, in turn, lowers your effective tax rate.

You can’t always deduct all of what you spend. Some itemized deductions, such as for medical expenses and charitable giving, are limited by percentages of your adjusted gross income (AGI). For example, you can only claim an itemized deduction for charitable giving for up to 50% of your AGI, and 20% and 30% limits apply to certain types of gifts.5

Tax filers can itemize their deductions, but there’s also a standard deduction that often works out to more than the total of their itemized deductions for many filers. For the 2019 tax year, the standard deductions are:

  • $24,400 for those who are married and file joint returns
  • $12,200 for single taxpayers and those who are married but file separate returns
  • $18,350 for taxpayers who qualify as heads of household6

These deductions increase to $24,800, $12,400, and $18,650 respectively in 2020

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