Understanding when and how to take itemized deductions
When you file your taxes, you’re allowed to take a tax deduction. This is an amount that you can subtract from your annual income to determine your amount of taxable income. A tax deduction, therefore, reduces the total amount you owe the IRS.
You have two options regarding your tax deduction: you can take the standard deduction, or you can choose to itemize your deductions. When you itemize, you add up all of your qualifying expenses incurred over the year and subtract this number from your income. Below is a non-exhaustive list of common expenses you can itemize:
- Job expenses
- Charitable donations
- Losses from theft
- Home mortgage points
- Local/state income tax
- Medical and dental expenses
- Personal property taxes
- Real estate taxes
For most expenses, the amount over two percent of your adjusted gross income is tax-deductible. For medical bills, you can deduct for the amount over 7.5 percent.
While itemizing your deductions is a more painstaking process than taking the standard deduction, it’s important to understand when it’s worthwhile to itemize, as this option could save you a lot of money.
In general, it is beneficial for you to itemize if:
- Your itemized deductions are more than the standard deduction
- You don’t qualify for the standard deduction
- You have a lot of medical bills
- You pay property taxes and interest
- You have a lot of business expenses
- You made large charitable donations in the last year
In addition, you’re required to itemize your expenses if:
- Your spouse itemizes their expenses and files separately
- You’re a non-resident alien
- You’re filing for less than a 12-month period
Filing taxes can be a painstaking process. If the thought of translating your last year of life into an expense report gives you a headache, a qualified tax attorney can help.