Question: I just worked my first job in 2024, and will pay taxes for the first time in 2025. I have heard about taking tax deductions for my charitable contributions or even with a home office, but I’ve also heard that tax deductions aren’t worth it for most people. Can you explain?
Answer: First off, congrats on landing your first job! Filing taxes for the first time can feel a bit like learning a new language — one that involves a lot of numbers (and let’s be honest, some pretty dry vocabulary.) But fear not! The truth is thankfully pretty simple.
Let’s start with what a tax deduction actually is. Think of deductions as your tax return’s “discount codes.” They can reduce the amount you owe to Uncle Sam by reducing the total income on which you are taxed). (This is different than a tax credit, which reduces your actual tax bill, dollar for dollar.) In order to use individual tax deductions, you have to“itemize” which involves creating a line-by-line accounting of the discounts you’re claiming. But before you get too excited about itemizing deductions, know that there’s already a built-in discount code that you might want to stick with…
The Standard Deduction vs. Itemized Deductions
For the 2024 tax year (the taxes that you’ll file in 2025), the standard deduction is $14,600 for single filers and $29,200 for married couples filing jointly. Everybody automatically gets this. You don’t need to do anything special to claim it — just check the box and move on.
The fact that the standard deduction is so large means that itemizing only makes sense if your deductions add up to more than standard deduction. Spoiler Alert: Most people can’t — about 90% of taxpayers take the standard deduction. But if you’ve had a year with big expenses, then itemizing might be worth your while. Here are some common itemized deductions that could help you top that standard deduction threshold:
Itemized Deductions: When Does It Make Sense?
- Medical and Dental Expenses: You can deduct medical expenses that exceed 7.5% of your adjusted gross income (AGI). This includes doctor visits, prescriptions, surgeries, and even certain travel expenses for medical care.
- Mortgage Interest: If you own a home, you might be able to deduct the interest you paid on your mortgage. This is a big one for homeowners, especially in the early years of a mortgage when interest payments are high.
- State and Local Taxes (SALT): You can deduct up to $10,000 for state and local income, sales, and property taxes combined.
- Charitable Contributions: Each year you can deduct the donations you make to legit charities. Some people employ a “batching” strategy to push their donations over the threshold — they give more in every other year or every third year and only itemize in those years. If you’re itemizing anyway, however, you can always deduct smaller amounts.
The Home Office Deduction: The Perk of Being Self-Employed
If you worked as a freelancer, contractor, or were self-employed in 2024, you might qualify for the home office deduction. The IRS offers a “simplified option” that gives you $5 per square foot of your office space (up to 300 square feet, for a maximum deduction of $1,500). Just be aware: The office space you count has to be used for business purposes only; it can’t double as a guest room, a nursery or anything else. Or if you’re super organized, you can use the “regular method” to deduct a portion of your home expenses like utilities, mortgage interest, and repairs — but be aware this gets complicated, so you may want to ask your tax preparer for help.
Just remember, this deduction is only for the self-employed — if you were solely a regular W-2 employee, unfortunately, no home office love for you.
Other Deductions to Keep in Mind:
- Retirement Contributions: Contributions to tax-advantaged retirement accounts like 401(k)s and IRAs can lower your taxable income.
- Health Savings Account (HSA): If you have a high-deductible health plan, contributing to an HSA gives you triple tax benefits: contributions are tax-deductible, they grow tax-free, and withdrawals for qualified medical expenses aren’t taxed.
- Education Expenses: If you’re paying student loan interest or contributing to a 529 college savings plan, you may be eligible for deductions here.
- Tax Loss Harvesting: If you sold any investments at a loss in 2024, you can use those losses to offset gains and potentially reduce your taxable income.
When In Doubt, Get Help
Taxes can be tricky, especially if you’re planning on itemizing your deductions. If you’re not sure which deductions you can claim or whether itemizing makes sense for you, consult with a tax professional who can help guide you through the process.
Granted, filing taxes might not be the highlight of your year, but with the right deductions, you might just get a little extra cash back in your pocket — or at the very least, pay a bit less. And who doesn’t love that?