Should I Itemize My Deductions?

Should I Itemize My Deductions Instead of Taking the Standard Deduction?

While filing your taxes, you can claim the standard deduction. This standard deduction varies on your filing status and allows you a deduction even if you haven’t saved any receipts over the tax year. Although most taxpayers take the standard deduction, there are some that itemize deductions and in return reduce more of their taxable income and able to claim a larger deduction.

If you’re wondering if itemizing your deductions is for you, you should first determine if your itemized deductions total to a number larger than the standard deduction amount. If you are filing taxes for prior years or the current year, you must save all receipts that support your itemized deductions.

What is an  Itemized Deduction?

Itemized deduction creates a decrease in a  taxpayer’s federal taxable adjusted gross income. In other words, itemized deductions turn taxable income into non-taxable income and ultimately reduce taxable income.

These itemized tax deductions are  IRS outlined and must be filed on your taxes and listed as itemized deductions on Schedule A. The sum of your listed deductions will be subtracted from income and leads to the amount of your final taxable income. These deductions must be supported by records, such as receipts.

The most important thing is to be sure your itemized deduction amount is greater than your filing status standard deduction amount.

Is There a List of Itemized Deductions?

There are certain categories of items that are allowed to be listed as an itemized deduction. They are as follows;

• Medical, Dental, Prescription Drugs, Other Health Costs
• State and local income taxes (or state and local sales tax)
• Personal Property Taxes
• Real Estate Taxes (Property)
• Home Mortgage Interest
• Investment Interest
• Charity and Church Contributions
• Fair Market Value of Non-Cash Contributions to charities and churches
• Union Dues
• Job Related Expenses (not reimbursed by your employer)
• Union Dues
• Purchasing or Cleaning cost of Uniforms
• Personal losses due to theft or casualty
• Expenses and Fees from Investments
• Job-related education and professional development
• Job-related travel
• Expenses from a Home-office
• Tax Preparation fees
• Safe Deposit Box Fees
• Gambling losses (from gambling winnings)

Are there minimums or limits?

Health Care Expenses: Are deductible if only they exceed 7.5% of your adjusted gross income (AGI).The amount that exceeds this percentage can be deducted as an itemized deductions.

Job expenses and miscellaneous deductions: Can be deducted only if they exceed 2% of your AGI, the amount exceeding this can be deducted.

Charitable Donations: Must be less than 50% of your AGI. Donations that you have paid capital gains tax on such as bonds, stocks, art works, or other assets are limited to 30% of your AGI.

Casualty and Theft Losses: Can be claimed if the loss exceeds $100 per loss event and exceeds 10% of your AGI

My Spouse and I are filing Separately, Can I Itemize my Deductions?

If you and your spouse are filing as “married, filing separately” and one of you itemized your deductions, the other must itemize deductions also or claim zero as the standard deduction.

Now that you know all about itemized deductions, do you know why itemized deductions were introduced to the tax return form in the first place? Well, itemized deductions were created as a social engineering tool to provide economic incentives to taxpayers for making donations to charities, buying houses, etc.

If you decide to take advantage of that incentive and itemize your deductions or instead, take the standard deduction, you can do so online with PriorTax. The user-friendly website helps you file your late taxes so you can focus on how you’re going to claim your current year deductions!

Photo via Clemson University on Flickr

This entry was posted on Thursday, December 12th, 2013 at 7:34 pm and is filed under Tax Deductions and Credits. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.