Taxation and Deductions Summary

Taxation Overview

  • Gross Income: Total income before deductions.

  • Adjusted Gross Income (AGI): Gross income minus For AGI deductions.

  • Taxable Income: AGI minus From AGI deductions; greater of standard deduction or itemized deductions applies.

Deductions Overview

  • Deductions for AGI: Available regardless of itemization; essential for calculating certain itemized deductions (e.g., medical expenses exceed 7.5% of AGI).

  • Deductions from AGI: Must exceed standard deduction to be beneficial; also known as itemized deductions.

Types of Deductions for AGI

  • Trade/business expenses.

  • Losses from property exchanges.

  • Half of self-employment tax.

  • Health insurance premiums (self-employed).

  • Contributions to retirement accounts.

  • Education-related deductions (up to $2,500 for student loan interest).

Miscellaneous Deductions

  • Health Savings Accounts (HSAs): Contributions deductible, tax-free distributions for qualified medical expenses.

  • Itemized Deductions: Include medical costs exceeding 7.5% of AGI, certain taxes, mortgage interest, and charitable contributions.

Medical Deductions

  • Deductible medical expenses must exceed 7.5% of AGI and can include hospital care, prescriptions, notable capital expenditures if primarily medical.

  • Transportation and lodging for medical care deductible under certain conditions.

Charitable Contributions

  • Donations must be to qualified organizations; donations of services are not deductible.

  • Limitations based on AGI percentages depending on the type of property donated (cash, capital gain property).

Miscellaneous Itemized Deductions

  • Certain expenses such as professional dues and job-hunting costs were eliminated post-2018, others remain (e.g., gambling losses).

Standard Deductions (2025)

  • Vary by filing status: $31,500 (MFJ), $15,750 (Single), $23,625 (HOH).

  • Additional deductions for seniors and the blind available.

Planning Strategies

  • Bunching Deductions: Timing deductions to maximize itemization benefits.

  • Understanding AGI limitations is crucial for deduction claims.