We’re getting close to the time of year in which we have to file our personal taxes. Every year there are itemized deductions that are overlooked which can lower your taxable income. You certainly don’t want to pay more taxes than you owe, so it’s a good idea to make sure you’ve deducted everything you can.
Don't Pay More Than You Should By Forgetting Your Deductions
You might ask if you should itemize. According to the IRS the answer is yes – if the total of your allowed itemized deductions exceeds your standard deduction. I was able to itemize as soon as I bought a home because my property taxes and home mortgage loan interest helped push me past the standard deduction I was taking at the time.
It’s especially important to keep deductions in mind if performing your own tax work. Even if you’re paying someone else to do your taxes this year, you may want to do some of your own homework and keep a list handy. I always keep in mind that no one cares about my financial situation as much as I do.
List Of Common Income Tax Deductions
I thought I would take some time to explore some of the more common deductions available. You may be aware of others, so if you know of any worth researching, please let us know about them in the comments.
- Gifts to charity: All contributions to charity or gifts to your church are considered tax deductions if you itemize. Read more about the tax rules because if the contribution entitles you to merchandise, gifts or services, you can only deduct the portion that exceeds the fair market value of the benefit you received.
- Points paid when refinancing: Did you refinance this year? With interest rates being so low many people made the choice to refinance their house. Points paid during refinancing are deductible.
- Medical and Dental expenses: Did you have a lot of medical expenses? According to the IRS, you may deduct only the amount by which your total medical care expenses for the year exceed 7.5% of your adjusted gross income.
- Education expenses: The IRS says you may be eligible to receive a deduction if you paid for education that helps you maintain or improve your job performance or is required by law to keep your salary, status or job.
- Energy savings home improvement: Did you make an energy conscious purchase for your home this past year? Check to see if your purchase is deductible.
- Home business: Are you running a business at home? If so, part of your home must be used for one of the following: 1) regularly and exclusively for your business (this is the criteria that is most often not the case for people); 2) a place where you meet with patients, clients or customer as a part of business; 3) or is in connection with your business (a separate detached structure).
- Deductible taxes: According to the IRS there are 5 deductible nonbusiness taxes. Personal property taxes are typically what help people itemize. Other taxes include the following: state, local and foreign income taxes, real estate taxes, state and local sales taxes and qualified motor vehicle taxes.
- Student loan interest or home loan interest: You may be eligible to deduct student loan interest. There are some qualifications in order to be eligible so do some research. For instance, your modified adjusted gross income has to be less than $70,000 ($145,000 if filing jointly).
- Miscellaneous Expenses: There three types of these expenses: 1) unreimbursed employee expenses; 2) tax preparation fees; 3) and other fees. These expenses are subject to a 3% limit of your Adjusted Gross Income. You can learn more here for a list of what is and isn’t deductible.
- Casualty and Theft Losses: You may be able to deduct any losses to your home, household items and vehicles. But, you may not be able to deduct these losses if covered by insurance. If you qualify you must reduce the loss by the amount of the reimbursement.
Disclaimer: I’m not a tax professional and this is not a complete list or is it meant to cover all the ins and outs (tax laws) of each deduction. If the deduction seems like it is a fit for your situation, do some more research, or speak to a tax professional.
The most important point to remember is to be prepared to file your taxes. Whether you are filing yourself, or using a professional, you need to understand which deductions you're eligible to receive. Again, no one cares for your financial situation as much as you do. :)