When you file your taxes, you have the option to either claim the standard deduction or itemize your deductions. While the standard deduction is a set amount, itemized deductions will vary from person to person.
As such, if you have a large number of itemized deductions you will likely be able to reduce your tax liability.
Itemized Deductions
The most popular itemized deduction is mortgage interest. Taxpayers may deduct interest paid on up to $1,000,000 of mortgage debt. Other itemized deductions include:
- Medical and Dental Expenses: Previously, you could deduct eligible expenses exceeding 7.5% of your AGI. This will change to 10% of your AGI in 2013.
- Deductible Taxes: You may deduct state, local, and foreign sales, property, income and vehicle taxes.
- Mortgage Points: You may deduct points paid as part of obtaining a mortgage.
- Charitable Contributions: You may deduct charitable contributions of cash and property, subject to certain limits and requirements as outlined in Publication 526. If your contribution exceeds certain amounts, you may need to file Form 8283.
- Miscellaneous Deductions: You can deduct other items if they exceed 2% of your AGI. Deductible items in this category include unreimbursed employee expenses, including education, and tax preparation fees. For more on itemize taxes, see Publication 529. Those who are self-employed can also take a number of deductions against their income.
Can I Itemize?
If a married couple chooses a filing status of Married Filing Separately and one spouse chooses to itemize deductions, the other is not eligible for the standard deduction.
While you do not have to submit proof of your itemized deductions, the IRS reserves the right to request documentation. Be sure to only claim deductions for which you have receipts or other proof of the transactions.
How to Itemize
- Add up all of your itemized deductions.
- Compare your itemized deductions to the standard deduction to see which is larger. You can claim the deduction which will allow you to pay the least amount of tax.
- Itemize deductions on Schedule A.
Tax Form to File to Itemize Tax Deductions
Itemized Deductions are claimed on Schedule A, which is filed with the 1040.
Filers who itemize tax deductions may not use the shorter forms 1040A or 1040EZ.
The IRS will not process 2012 returns for those who itemize deductions until January 30, 2013.
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Great article Jill! Sadly, there’s not many tax deductions left for employees.
People would do well to start a home business to increase their income and potentially save thousands of dollars every year on home business tax deductions.
With the prices of food and gas going up dramatically in 2011, people need to maximize tax deductions with a home business.
Tax trainer Sandy Botkin teaches that home business owners can potentially save $6-10k every year.