Revisit Your Deductions Every Year
It may be that claiming the standard deduction makes sense for your 2021 tax return, or vice versa. But one thing you should know is that tax rules can change from year to year, as can the standard deduction. It pays to assess your approach to deductions every time you sit down to tackle a return. Or, to put it another way, if you decide that itemizing is a smart move this year, you should run your numbers next year to see if the same holds true.
What Can I Take A Tax Deduction For
In order to take a tax deduction for a charitable contribution, you’ll need to forgo the standard deduction in favor of itemized deductions. That means you’ll list out all of your deductions, expecting that they’ll add up to more than the standard deduction.
The most common expenses that qualify are:
- Mortgage interest
Medical And Dental Expenses
If the amount you spent on medical and dental expenses is equal to or less than 7.5% of your adjusted gross income, you do not qualify for the deduction. If it is more than 7.5% of your income, you can deduct the difference from your income.
For example, if you make $100,000 per year and your total medical and dental expenses amount to $7,500 or less, you cannot claim any deduction. If, on the other hand, you spend $12,000 on medical and dental expenses, you are allowed to deduct $4,500 from your income.
Some of the qualifying medical expenses include:
- Diagnostic procedures like x-rays and scans
- Prescription medications
- Ambulance services and in-hospital care
- Fees charged by general physicians, dentists, psychiatrists, ophthalmologists, podiatrists, and physical therapists
You can even deduct the amount you spend on home renovation, as long as it is done for medical purposes like constructing a wheelchair ramp.
Recommended Reading: What Happens If You Cannot Pay Your Taxes
What Does The Standard Deduction Mean
Taxpayers have an alternative to itemizing: They can take the standard deduction. The standard deduction is automatically available to all tax filers, and taxpayers don’t have to do anything to become eligible for this deduction.
The standard deduction is a flat rate that changes annually and is determined based on your filing status. The table below shows how much the standard deduction is in 2018 and in 2019, depending on filing status.
If you claim the standard deduction, you cannot itemize. If you itemize, you cannot claim the standard deduction. You have to choose.
Tax Forms Instructions & Booklets
The resident tax booklets contain both the tax forms and the instructions for each major form. The tax forms on the Web site are available separately from the resident and nonresident instruction booklets.
All of our tax forms have been reformatted to ensure enhanced readability when paper forms are filed. This format has increased the number of pages of some of the tax returns. Make sure that you attach all pages of your return to ensure that your return is processed correctly.
- Tax Forms and Instructions Online – Tax forms and instructions for Individual and Business taxpayers are available here online at Maryland Tax Forms and Instructions .
- Tax Booklets at Libraries – We have provided a limited supply of tax booklets to a number of libraries throughout the State that have requested them.
- Tax Booklets at Comptroller’s Taxpayer Service Offices – Tax booklets are available at all of our local taxpayer service offices.
- Request a Tax Booklet – Taxpayers may request a resident or nonresident tax booklet by calling 260-7951, or by e-mail at .
Read Also: What Tax Form Should I Use
Proof Of Income And Expenses
Your eligibility for certain deductions depends on your adjusted gross income. So, to confirm this, you need to submit a proof of income.
Depending on your occupational status , you might need one or more of the following documents, including a pay stub, bank statement, W-2, 1099, 1099-MISC, and more.
The IRS generally does not require you to submit proof of expenses while filing your returns. However, in the event of an audit, you will have to submit the documentation for every deduction you claimed in your returns.
Its a prudent idea to collect all the required documents beforehand and keep them safely filed away.
Home Equity Loan Interest
A home equity loan is essentially a second mortgage on your house. With a home equity loan, you can access the equity youve built in your home as collateral to borrow funds that you need for other purposes.
Like regular mortgage interest, you can deduct the interest youve paid on home equity loans and home equity lines of credit. However, you can only make this deduction if you used the borrowed funds to pay for a home improvement. Prior to the Tax Cuts and Jobs Act of 2017, you could deduct the interest on these loans regardless of how you spent the funds.
You May Like: What To Do When Taxes Are Late
What Do I Need In Order To Claim A Charitable Contribution Deduction
Once you’ve decided to give to charity, consider these steps if you plan to take your charitable deduction:
- Make sure the non-profit organization is a 501 public charity or private foundation.
- Keep a record of the contribution .
- If it’s a non-cash donation, in some instances you must obtain a qualified appraisal to substantiate the value of the deduction you’re claiming.
- With your paperwork ready, itemize your deductions and file your tax return.
Should I Bother To Itemize My Taxes
Many Americans dread the annual ritual of gathering documents and trudging down to the local tax preparation center.
But in reality, many of those people suffer needlessly through that exercise and the related expense of having someone else sift through your shoebox of receipts.
That’s because all U.S. taxpayers are granted a substantial “standard deduction” each tax year. This sum is the amount that Uncle Sam is willing to knock off your tax bill, no questions asked.
And unless all those receipts add up to a tax break that tops this guaranteed standard deduction, you’re just wasting your time.
“Approximately two thirds of all tax returns use the standard deduction,” said Monica Rebella, a certified public accountant based in California.
And while some of those folks may have simply lost the proper documentation, the bottom line is that many never had significant enough expenses worth bothering with complex, itemized tax returns.
What is your standard deduction?
Deciding on whether it’s worth digging through all your old documents and itemizing your return starts with figuring out what your standard deduction is.
For tax year 2014, standard deduction amounts are $6,200 for single filers or those married but filing separately, $9,100 for those defined as “head of household,” and $12,400 for married taxpayers filing jointly.
When does itemizing make sense?
In Publication 501, the IRS itself recommends looking into an itemized return in the following cases:
You May Like: What Can You File On Taxes
Itemized Deductions Should I Itemize My Tax Deductions
Itemized deductions, what are the income limitations? Who qualifies for the standard deduction? Who is not allowed to use the standard deduction? How do I phase-out itemized deductions? All these questions may be running through your head. Dont worry, we will walk you through this maze of itemized deductions.
Are you looking ahead to the filing season for this years tax returns? A frequent question is whether you should keep track of tax-deductible expenditures? Or should you simply settle for the standard deduction amount.
Casualty And Theft Losses
Any casualty or theft loss incurred as a result of a federally declared disaster can be reported on Schedule A. Unfortunately, only losses in excess of 10% of the taxpayerâs AGI are deductible after subtracting $100 from the loss amount. If a taxpayer incurs a casualty loss in one year and deducts it on their taxes, any reimbursement that is received in later years must be counted as income. Taxpayers must complete Form 4864 and report the loss on Schedule A.
You May Like: How Much Do Tax Free Municipal Bonds Pay
Home Mortgage And Home
Home mortgage interestis deductible on the first $750,000 in loans. Each year, mortgage lenders mail Form 1098 to borrowers, which details the exact amount of deductible interest and points that theyâve paid over the past year.
Taxpayers who bought or refinanced homes during the year can also deduct the points theyâve paid, within certain guidelines. If the mortgage was originated before Dec. 16, 2017, then a higher limitation of $1 million applies. The higher limit still applies if you refinance that older mortgage, as long as the loan amount stays the same. For tax years after 2025, the $1 million limitation reappears regardless of when the loan was taken out.
Should I Itemize My Deductions
Many people mistakenly believe that tax deductions directly reduce the amount of taxes that they owe. The reality, however, is that tax deductions lower the amount of a taxpayers taxable income, which in turn, lowers his or her tax liability. There are a couple of different ways to track deductions when filing a federal tax return, one of which is known as itemization. Failing to comply with certain requirements when utilizing either method can result in refund delays and other problems, so if you recently received notice of a problem with your tax return or you have a deduction-related question, you should reach out to an experienced Florida tax return preparation lawyer for help.
The first way to claim deductions is known as itemization, which involves accounting for certain payments when filing ones tax return, including:
- State and local income or sales taxes
- Real estate taxes
- Some medical and dental costs.
Itemization is a good option for certain taxpayers, including those who:
- Cannot use the standard deduction
- Can only claim a limited amount
- Have large uninsured medical and dental expenses
- Own a home on which they paid mortgage interest or real property taxes
- Have large uninsured theft or casualty losses or
- Made significant contributions to charitable organizations.
Taxpayers whose allowable itemized deductions are greater than their standard deduction amount should opt instead for itemization.
You May Like: How To Pay Colorado State Taxes
When Does It Pay To Itemize
Let’s get one thing out of the way: If you don’t have enough eligible deductions to exceed the aforementioned figures, then itemizing makes no sense. For example, if you’re a married couple filing jointly with $18,000 in itemized deductions, you’d lose out by going that route, since you’d otherwise be entitled to a standard deduction that’s $6,400 higher. And to be clear, what all deductions do is exempt a portion of your income from taxes, so you want the most substantial deduction possible.
Now, what if your itemized deductions exceed what you’re eligible for via the standard deduction? Should you automatically itemize?
Not necessarily. As mentioned earlier, itemizing is complicated, and it opens the door to mistakes and, in some cases, tax audits. The mere act of itemizing itself won’t raise a red flag with the IRS, since it’s a common practice, but if some of your itemized deductions appear suspicious , or they’re really high relative to your income , it could spell trouble. As such, if your itemized deductions will barely put you above the thresholds for the standard deduction, they may not be worth it, especially since itemizing also opens the door to innocent mistakes that could land you on that dreaded audit list.
On the other hand, if your itemized deductions well exceed the standard deduction you’re entitled to, then itemizing certainly pays. You can take a deduction for:
Talk To A Tax Attorney
Need a lawyer? Start here.
Read Also: How To Calculate Tax Return
Should You Itemize On Your Taxes
When it comes to taxes, no one wants to pay more than necessary. That’s why it’s important to maximize your tax deductions. Deductions reduce your taxable income — so if you made $50,000 and had a $1,000 deduction, your taxable income would be just $49,000. Since you don’t have to pay taxes on the amount you deducted, your savings is determined by the tax rate at which the income would’ve been taxed.
When it comes to maximizing your deductions, you have a big decision to make: Will your deductions be larger if you itemize, or should you claim the standard deduction?
What Is The Standard Deduction
The main difference between a standard deduction and an itemized deduction is that a standard deduction is a set amount you can subtract from your taxable income when you file your taxes. Tax deductions are great because they lower your taxable income and that means a lower tax bill! The standard deduction is like an automatic tax freebie thats based on your income, age and filing status: single, married or head of household.
For 2021, the standard deduction is $12,550 for single tax filers, $25,100 for married filing jointly, $12,550 for married filing separately, and $18,800 for head of household.2
It might seem like a no-brainer to take the standard deduction, but lets look at some of the pros and cons.
You May Like: How To Pay Virginia State Taxes
Should You Itemize Or Should You Claim The Standard Deduction
Since you need to choose between itemizing or claiming the standard deduction, you’ll want to choose the option that allows you to subtract the largest amount from your taxable income. After all, the more you can deduct, the more income goes untaxed and the lower your total tax bill.
To figure out which option is right for you, add up the value of itemized deductions you could potentially claim. Then compare this amount to the standard deduction. Some of the most popular deductions you have to itemize to claim include:
- The deduction for mortgage interest: You can deduct interest you pay on mortgages valued at up to $1 million if you purchased your house prior to December 16, 2017, or on mortgages valued at up to $750,000 for homes purchased after the 16th of December .
- The deduction for state and local property taxes: Starting in tax year 2018, you can deduct up to $10,000 total in state and local property tax. This includes state income tax and state sales tax, as well as property taxes. Before tax year 2018, there was no cap on this deduction.
- The deduction for charitable contributions: You can generally take a deduction for all contributions you make to eligible charities, although total charitable deductions can’t exceed 60% of adjusted gross income.
- A deduction for medical costs: In tax year 2018, you’re eligible to deduct care expenses only if they exceed 7.5% of income. For the 2019 tax year, you can claim this deduction if your expenses exceed 10% of income.
Comparing Standard Vs Itemized Deductions
When you claim a standard deduction, it allows you to deduct a set amount of money from your taxes. And when you claim itemized deductions, you lower your income from a list of qualifying expenses that were approved by the IRS. Taxpayers usually claim the option that lowers their tax bill the most.
The Trump tax plan overhauled the tax code in December 2017, which lowered individual tax rates, raised standard deductions, and lowered the deduction threshold for medical expenses, among other changes.
The table below breaks down standard deductions by filing status and compares tax year 2017 vs. 2021 and 2022.
|Single Taxpayers/Married Individuals Filing Separately||$6,350|
As you can read above, the standard deduction for single taxpayers and married individuals filing separately has increased from $6,350 in 2017 to $12,950 in 2022. It went from $12,700 in 2017 to $25,900 in 2022 for married couples filing jointly, and gone from $9,350 in 2017 to $19,400 in 2022 for heads of households.
However, Trumps tax changes eliminated the $4,050 personal exemption that you could claim for yourself and each of your household dependents in 2017, which made itemizing tax deductions less beneficial for many taxpayers, including large families. The Tax Cut and Jobs Act eliminated the personal exemption for tax years 2018 through 2025.
C Mileage Deduction Charitable Purposes
Iowa allows an additional deduction for automobile mileage driven for charitable organizations. Calculate the deduction as follows:
- Number of miles x 39¢ / mile
- Less charitable mileage deduction already claimed on the Iowa Schedule A
- Equals additional mileage deduction for charitable purposes
This information is based on 422.9 and 8A.363.
What’s The Maximum Amount I Can Claim As A Charitable Tax Deduction On My Taxes
When you donate cash to a public charity, you can generally deduct up to 60% of your adjusted gross income. Provided you’ve held them for more than a year, appreciated assets including long-term appreciated stocks and property are generally deductible at fair market value, up to 30% of your adjusted gross income. Combining more than one type of asset can be a tax-efficient move to maximize the amount that you can take as a charitable tax deduction.
Also Check: When Do I File Business Taxes