What Expenses Can Be Itemized?
What Expenses Can Be Itemized? Answered Here in 5 Steps
Do you want to know what expenses can be itemized for your next tax return? Follow this simple guide to help you save money and time.
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Have you ever wondered if you can itemize deductions on your tax return? Actually, have you ever wondered what, exactly, itemizing means?
If so, you ve come to the right location.
I m going to teach you the basics of itemizing: What itemizing is, whether you qualify to itemize and, if so, how to do it.
1) Tax Preparation Software
Tax prep software can help you through all potential deductions and even determine if its best to itemize or take the standard deduction. One of our favourites right now is TurboTax you can file your easy federal return for free, and they’ll walk you through those itemized deductions so that you can feel assured filing.
2) What Does It Mean To Itemize Deductions?
When you’re filling out your federal tax return this year, you are going to be asked to either compute your itemized deductions or to take the standard deduction an amount predefined by the IRS and based upon your filing status (e.g., single or married filing jointly).
If you don’t qualify to itemize deductions, then you will choose the standard deduction.
3) How To Find Your Taxable Income
To find your taxable income, you must subtract the standard or itemized deduction from your Adjusted Gross Income (AGI).
To be blunt, these deductions are our friends because they lower the amount of taxes that we have to pay.
4) What Are Itemized Deductions?
Itemized deductions are comprised of various types of certain expenses that you incur throughout the year (things that are paid for to help you run your business).
If the whole amount of those expenses is greater than the standard deduction amount, you need to itemize rather than taking the standard deduction.
5) Do You Qualify For Itemized Deductions?
The most common expenses that qualify for itemized deductions include:
- Home mortgage interest
- Property, state, and local income taxes
- Investment interest expense
- Medical expenses
- Charitable contributions
- Miscellaneous deductions
I will give you more details to help you learn more below.
Home mortgage interest
If you took out a mortgage to purchase a home, the interest on that mortgage is deductible as an itemized deduction.
Most men and women qualify for this deduction as it s allowed up to the first $1,000,000 borrowed on a mortgage. This deduction is allowed for two residences per taxpayer.
You can also deduct interest on a home equity loan as long as that loan is less than $100,000.
If you own a home, you can deduct the real estate taxes that you pay on your dwelling. However, you can’t deduct prepaid taxes. You can only deduct those taxes which are allocated to the year in which you are filing your taxes.
You can also deduct any state and local taxes (sometimes referred to as city tax) that you paid on your earnings during the year. This is a huge perk of itemizing (because most taxpayers pay state income tax but you can only deduct those taxes if you itemize deductions).
Investment interest expense
When you begin investing, you may incur expenses like broker or advisor fees or safe deposit box charges. You can deduct these as itemized deductions.
Just be careful: You can only deduct up to the amount that you earn through your investments. So, if you had a bad year and didn’t get anything, you can’t deduct these expenses. (However, you may qualify for Capital Loss treatment.)
Medical expenses are deductible as itemized deductions, but in a very limited way. You can only deduct the number of medical expenses that exceed 10 percent of your AGI (7.5 percent if you re over 65).
For example, if your AGI was $50,000 and you spent $5,500 in medical expenses during the year, you could only deduct $500 ($50,000 x 0.1 = $5,000).
Some qualifying medical expenses include: Prescriptions, doctor s fees/co-pays, insurance premiums, necessary surgery (not cosmetic), physical handicap costs, and transportation to a medical facility. You can also deduct 24 cents for each mile you drove for medical care.
To learn even know more about what expenses can be itemized speak to an incredible tax expert today by pressing Contact Us above.
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