Tax season is almost here, and it’s time to talk about itemized deductions. We’ll explain what they are, why you might want to take them, and how they’ve changed from last year.
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The itemized deduction
An itemized deduction is a specific expense that can be deducted from your taxable income when you file your taxes. Itemized deductions include items such as mortgage interest, state and local taxes, charitable donations, and medical expenses.
To itemize your deductions, you must first calculate your total eligible expenses for the year. You then compare this amount to the standard deduction, a set amount you can deduct from your income regardless of your expenses.
If your total eligible expenses are greater than the standard deduction, you can itemize your deductions on your tax return. Itemizing deductions can help you save money on your taxes, but it requires keeping track of all of your expenses throughout the year.
The standard deduction
The standard deduction is the amount that you can deduct from your taxable income if you do not itemize. The standard deduction is adjusted annually for inflation and is:
- $12,950 for single filers
- $25,900 for married couples filing jointly (and surviving spouses)
- $19,450 for heads of household and for married individuals filing separately
Many itemized deductions have been suspended or restricted
Many itemized deductions have been suspended or restricted. As a result, there are fewer tax deductions for you to claim this year than in the past.
You may want just to take the standard deduction instead of itemizing your deductions. The standard deduction is a set amount of money that you can deduct from your income before determining how much tax you’ll owe.
For example, if you’re single and earn $50,000 per year, your deduction would be $12,950. That means all other things being equal (however unlikely), it will cost you less money if you take the standard deduction instead of itemizing all of your expenses this year
Deducting home mortgage interest
If your mortgage interest is more than the standard deduction, you may be able to deduct the excess as an itemized deduction. To do so, you’ll need to file Form 1040, Schedule A, and itemize your other deductions separately from your standard deduction.
What is home mortgage interest? It’s money paid on a loan to buy or improve your main or second home. It includes points paid at closing (typically 1% of the loan amount), any prepaid interest, mortgage insurance premiums and private mortgage insurance premiums.
Deducting home mortgage interest is limited by how much of the house’s value was financed by debt—unless it was purchased before December 15th, 2017, when no limit applied for new mortgages in most cases. The limit is now $750,000 (or $375K if single).
Deducting charitable contributions
The IRS has rules about what qualifies as a charitable contribution. You can generally deduct the value of your time, property, or services donated to a qualified charitable organization.
You can also deduct the cost of travel to and from an out-of-town location for volunteer work if it’s related to your job. If you give money directly to a charity, that donation is fully deductible—as long as it’s not earmarked for a specific project or cause.
If it is specified in any way (for example, “this money will go toward building a school”), only the portion that goes toward that purpose is tax deductible; if any funds are unavailable at year end due to fiscal problems with the charity itself (such as fraud), those monies cannot be recovered through taxes but rather need direct action by you with accountants and lawyers involved.
To get full deduction benefits on donations of cash or property worth more than $500 each year ($250 if married filing separately), everything must be done in accordance with IRS regulations—including keeping written records, including receipts from charities themselves showing how much was given out each time along with descriptions of items contributed (whether clothing clothes food etc).
Deducting medical and dental expenses
If you’re eligible to claim itemized deductions on your tax return, you can deduct medical expenses that exceed 7.5% of your adjusted gross income.
Deductible medical expenses include:
- Doctor fees
- Hospital bills
- Prescription drugs (but only if they aren’t purchased through a pharmacy benefit manager)
- Medical equipment such as wheelchairs and walkers
Deducting state income or sales taxes
Calculating your state income tax deduction is simple:
You need to know the amount of state income taxes you paid in the current year. This includes both the amount withheld from your paycheck and any estimated payments you made throughout the year. If you didn’t pay any state income taxes last year, then don’t deduct anything from your federal return.
The process for calculating your sales tax deduction is similar:
If you paid sales tax on certain items that were received during the previous calendar year (say, a new computer or clothing), add those purchases together and then divide by 12 to determine how much sales tax was collected per month. The total amount will be entered on Schedule A as an itemized deduction for state and local income taxes.
If neither of these applies to you—for example, if all of your property taxes are deductible under another category (like mortgage interest) or if they’re not being deducted at all—then there’s no need to calculate anything further!
Finally, if either of these situations applies but not both (e.g., even though some portion of real estate property taxes is being claimed elsewhere), then figure out whether taking this route will give better results than claiming just one type separately—and make sure that whichever choice ultimately saves more money overall!
There are fewer tax deductions this year, so you may want to take the standard deduction instead
You may want to take the standard deduction instead of itemizing deductions because there are fewer tax deductions available this year than in previous years.
The standard deduction is a set amount of money that you can deduct from your income before calculating how much you owe in taxes. This amount varies yearly, and it’s basically the same for everyone—it’s determined by the IRS based on current law.
Itemized deductions are additional expenses that require you to fill out an extra form (Schedule A) along with your 1040 tax return, which is submitted annually during tax season.
Itemized expenses include things like mortgage interest payments, charitable donations and medical costs exceeding 7.5% of your adjusted gross income (AGI).
You must determine whether or not these expenses exceed the standard deduction before deciding whether or not it makes sense for you personally; otherwise known as whether or not itemizing makes sense for you!
Itemizing your taxes might be right for you
In summary, the itemized deduction is a more complex system that requires you to keep track of all your expenses throughout the year. If this sounds like too much work, you may want to opt for the standard deduction instead.
However, if you’re an organized person who wants to maximize their tax return by taking advantage of every possible deduction available, then itemizing might be right for you!
How to file your taxes online and itemize your return
Filing your taxes online is easy and convenient and can help you get your refund faster. Itemizing deductions can be a bit time-consuming, but it’s worth it if it means getting a bigger tax refund. And by filing online, you can avoid dealing with paper forms and paperwork.
If you’re unsure whether you should itemize your deductions or take the standard deduction, use the Tax Calculator to help you make the best decision for your tax situation.
If you decide to itemize your deductions, you’ll need to gather all of your receipts and documentation for expenses like charitable donations, medical expenses, and home office expenses. Once you have everything organized, you can enter the information with ease.