As tax season approaches, many taxpayers are looking for ways to maximize their deductions and reduce their taxable income. One way to achieve this is by itemizing your expenses on your tax return.
In this article, we will provide an overview of tax deductions and specifically focus on the expenses that can be itemized, according to current IRS guidelines. We will also discuss some tips for maximizing your deductions while staying in compliance with IRS regulations.
Understanding Tax Deductions
Tax deductions are expenses that can be subtracted from your taxable income, reducing the amount of taxes you owe. There are two ways to claim deductions: by taking the standard deduction or by itemizing your deductible expenses.
The standard deduction is a fixed amount set by the IRS each year, based on factors such as filing status and age. For example, in 2021, the standard deduction for individuals under age 65 who file single is $12,550.
Itemizing means listing all of your eligible deductible expenses on Schedule A (Form 1040) instead of taking the standard deduction. The total amount listed must exceed the standard deduction to benefit you.
Qualifying Expenses
Not all expenses can be deducted from your taxable income; only certain types qualify as deductible under IRS guidelines.
Medical Expenses
If you incurred medical or dental bills that were not reimbursed during the year and exceeded​ a certain threshold (7.5% of adjusted gross income in 2020), those excess amounts may be claimed as itemized deductions.
Some examples include:
– Doctor visits
– Prescriptions
– Hospital services
– Dental care
– Physical therapy
Note: Cosmetic surgery does not qualify unless it corrects a deformity arising from congenital abnormalities or personal injury resulting from an accident or trauma.
State And Local Taxes
SALT Limitations – As per TCJA law passed back in 2017, taxpayers can get a maximum of $10,000 as an itemized deduction for the combined amount paid in state and local property taxes OR income/sales taxes.
Mortgage Interest
Homeowners can deduct interest on a mortgage of up to $750,000 after Dec 31st 2017.
Charitable Contributions
If you donated money or goods to qualified charitable organizations during the year, it could be deductible.
Some examples include:
– Monetary donations
– Property donations like clothing and furniture
– Mileage driven while volunteering
Note: Only donate to recognized charities that provide receipts.
Maximizing Your Deductions
To maximize your deductions:
- Keep accurate records: Keep track of all expenses that qualify as itemized deductions with receipts and statements throughout the year.
- Time payments carefully: You may be able to increase some expense amounts by paying for them before the end of the current tax year rather than waiting until after January 1.
- Consult professionals: Get professional guidance from certified public accountants (CPAs) or IRS-certified tax preparers.
Remember! Defer actions based on potential tax consequences without seeking proper advice from a CPA first as there are many factors involved beyond taxation such as cash flow management .
Conclusion
Overall, claiming itemized deductions comes down to keeping good records throughout the year and knowing what kind of expenses qualify under IRS guidelines. Before filing your return, consult with an experienced tax preparer if you have further questions about which expenses could help reduce your taxable income.
Armed with this knowledge and careful planning ahead,you’ll find yourself empowered when it comes time to file your taxes next year!
FAQs
Sure! Here are three popular FAQs with answers for “Tax Deductions: What Expenses Can You Itemize?”
Q1. What are itemized deductions?
A1. Itemized deductions are expenses that taxpayers can claim on their income tax returns to reduce their taxable income. Instead of taking the standard deduction, taxpayers can choose to list out all qualifying expenses and claim those as itemized deductions, potentially resulting in a lower tax bill.
Q2. Which expenses qualify for itemized deductions?
A2. Some common expenses that may qualify for itemized deductions include:
– State and local taxes paid (up to a certain limit)
– Home mortgage interest payments
– Charitable donations
– Medical and dental expenses (above a certain threshold)
– Tax preparation fees
However, it’s important to note that there may be other eligible items depending on your individual circumstances and tax situation.
Q3. Are there any limits or restrictions on claiming itemized deductions?
A3. Yes, there may be limitations or restrictions on claiming certain types of itemized deductions depending on your filing status and adjusted gross income (AGI). For example:
– The total amount of state and local taxes you can deduct is capped at $10,000.
– There is an AGI floor for deductible medical and dental expenses; only the amount above 7.5% of your AGI can be claimed.
It’s also important to keep careful records of all eligible expenses if you plan to claim them as itemized deductions.
