Posted by Raven Skylar Tax & Consulting, LLC

Everything to Know About Itemizing Deductions

Everything to Know About Itemizing Deductions

Filing your taxes via the itemizing route might appear a little daunting, especially if you do not get the details. When it comes to reducing your tax liability, everyone has two options for reducing tax liability – standard deduction for itemizing the actual expenses to know what you can deduct. 

Itemizing can significantly bring down your tax bills in some situations. This article will shed light on everything you need to know. 


Understanding Itemizing and the Reason Behind it

With itemizing, a taxpayer makes a list of expenses paid all through the year to be deducted in taxes. Such expenses will be included in the income tax to get a tax deduction. 

When you sum up the entire deduction, and it is not more than the standard deduction value, one can go through the standard deduction route, except one does not qualify. 

Here are criteria that disqualify one from going through the standard deduction route:

  • You are not a citizen but a nonresident alien or dual-status alien

  • Even though you are married, you filed separately with your spouse and your partner itemized 

  • Your accounting approach changed, and you will file your tax return in less than 12 months. 

Your specific situation as your standard deduction could give you a better tax break compared to an itemized deduction. It is all a factor of your expenses for the previous year. 


Expenses one can Itemize 

There are expenses that Uncle Sam permits for itemizing. A random taxpayer with a house and retirement accounts discovers that itemizing their home mortgage interest, property taxes, investment expenses, state and local income taxes is possible. 

A charitable donation is another common deduction one can include. There are also a series of miscellaneous deductions one can deduct.

 

Details of Itemizing 

Anyone can have a list of deductible expenses like tuition costs, donations to charity, etc. 

However, it is not as simple as it sounds as it gets pretty complicated compared to simply having a list of expenses one wants to deduct. As an example, your medical expenses only apply if they are 7.5% more than your AGI. The implication is that you have some nasty health issues which cost you some money. 

To further complicate matters, cosmetic procedures are not allowed. While it might seem reasonable, wait till you have a cosmetic procedure that is pretty necessary. Such can make the decision of whether itemizing or taking the standard deduction hard.

 

Itemizing Deduction: The Easy Part 

Not every part of itemizing is as tricky as a medical expense deduction. 

Itemizing charitable deductions, for instance, is pretty easy as one needs to add the entire amount donated to an organization that qualifies for the year. Provided more than 50% of your AGI wasn't contributed, donation as the whole amount can be included.

The overwhelming tax instructions should not stop you. Simply following all necessary instructions can help itemize your deductions even though you might need to understand the rule. There are a series of options with which you can figure out your tax – using software, working with a tax professional, etc.

 

Claiming Itemizing Deductions 

After itemizing your deductions, you should know how you will claim them. 

For people using IRS Form 1040, Schedule A is essential to estimate their deductions. Also, it should be clearly stated on your 1040 that you are going by the itemizing route. 

With Schedule A, you get a detailed instruction which will make it easy to calculate your deductions. With the forms and your financial data available, everything you need to do becomes pretty easy. All you have to do is enter the summation of each deduction type on the line.

Make sure you have a detailed record of all your tax deductions for the year. With this, you will quickly know which filing method – standard deduction or itemized deduction – will make you have a higher deduction. 

Don't forget that going through the itemizing route is recommended only if the value is more than the standard deduction amount. For people with the larger standard deduction, you can forgo itemizing as it will save you more.


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