Adjustments, Deductions, Exemptions and Credits
Before the government starts calculating you income tax, they allow everyone to deduct a certain amount first (they do recognize you need to eat before you pay taxes). This “deduction” really consists of 3 different pieces: adjustments, personal deductions, and business deductions.
Every taxpayer gets a "standard (personal) deduction” based on his filing status. A single person gets a “Standard” deduction of $14,600 (2024) and a married couple get a Standard deduction of $29,200.
Taxpayers who have certain types of personal expenses (mortgage interest, state & local taxes, medical expenses, and charitable gifts being the most common) may itemize expenses and if the total is more than the standard deduction, they may take those “Itemized” deductions instead of (not in addition to) the standard deduction. Itemized deductions are claimed on Schedule A. TurboTax (TT) automatically assigns you the standard deduction, until you enter enough itemized deductions, to exceed $14,600 ($29,200 married).
Business deductions (including rental property) are claimed as deductions directly against the business income. Whereas, the personal deduction (whether itemized or standard) is claimed against your overall (total) income. Business income and deductions, for the self-employed, are claimed on schedule C and rental income and deductions (including depreciation) are claimed on Schedule E. These business/rental deductions are in addition to your standard (or itemized deductions).
Then there are adjustments to income. These are sometimes called “above the line” deductions because they are deducted in addition to the standard deduction, not instead of. Some common ones are IRA contributions, Alimony paid, teacher expenses, student loan interest and self-employment tax.
You may have heard of another deduction called an "exemption". Exemptions were eliminated starting in tax year 2018. Everybody used to get an “exemption” of $4000. This was per person, hence the term “personal exemption”. Each taxpayer got an exemption for himself, his spouse and for each dependent he claimed on his tax return. The elimination of exemptions was accompanied by larger standard deductions, starting in 2018.
