What Are Itemized Tax Deductions?
When searching for ways to reduce your taxable income, itemizing your deductions can really maximize your tax savings. The benefit of itemizing is that it allows you to claim a larger deduction that the standard deduction. However, it requires you to complete a Schedule A attachment to your return and to maintain records of all your expenses.
Types of itemized deductions
Itemized deductions include a range of expenses that are not otherwise deductible. Common expenses include the mortgage interest you pay on up to two homes, your state and local income or sales taxes, property taxes, medical and dental expenses that exceed 7.5 percent (10 percent beginning in 2019) of your adjusted gross income, and the charitable donations you make. For years prior to 2018, itemized deductions also include miscellaneous deductions such as work-related travel and union dues. Once you decide to itemize, you are eligible to claim all of them.
In order to claim itemized deductions, you must file your income taxes using Form 1040 and list your itemized deductions on Schedule A. Once you have entered your expenses on the appropriate lines of Schedule A, add them up and copy the total to the second page of your Form 1040. This amount is then subtracted from your income to arrive at the final taxable income number.
Deciding whether to itemize
When deciding whether to itemize, you need to remember that you will be giving up the standard deduction. Therefore, after adding up your itemized deductions, you need to make sure the total is greater than the standard deduction for your filing status. If it’s not, then you will most likely pay more in tax if you itemize.
Alternative minimum tax implications
If you are subject to the Alternative Minimum Tax (AMT), some or all of the itemized deductions that you claim may be reduced or eliminated. For example, your medical and dental expenses deduction is reduced and you cannot deduct the interest on home equity loans. The AMT also disallows state and local income or sales taxes. Additionally, the AMT removes tax preparation fees and unreimbursed employee expenses that will no longer be regular itemized deductions either starting in 2018. When you use TurboTax to prepare your taxes, we’ll ask simple questions about your tax situation and we’ll recommend whether itemizing or claiming the standard deduction will get you a bigger tax refund (or lower tax due).
These tips and deduction updates should help you navigate the complex changes in the new tax laws. If you have more questions please feel free to contact the staff of All About Tax LLC. at (704) 900-5266 or come by our office at 4822 Albemarle Rd. Suite 110-F Charlotte, North Carolina 28205. We are here to answer all your income tax filing questions and point you in the right direction to maximize your deductions.