Filing taxes is a time when some people are seeking the biggest refund, and others are just looking to owe the IRS less money. In order to accomplish these goals, people are constantly discussing the deductions available to claim on their tax return. Deductions are government approved expenses which partially apply toward your income. As a result, the taxable income earned is lowered, and therefore the tax owed to the government. The main question you need to ask yourself when filing your taxes is whether you fall into the category of claiming the standard deduction, or if you should itemize your deductions. For assistance with comparing your benefits, contact Tax-Net LLC in Jonesboro, GA, after reading this article.
Most taxpayers qualify for the Standard Deduction. The Standard Deduction is an amount determined by the Internal Revenue Service. It is calculated with the assumption that the average taxpayer will spend a certain amount on expenses that the IRS determines are eligible to be deducted. The IRS bases the amount of the standard deduction on your filing status. For example, if you are Single, the IRS assumes that you will total an average of $12,400.00 on qualifying expenses throughout the year. Therefore, they set that amount as the standard deduction. When you claim the standard deduction, your taxable income for the year is reduced by that amount, and your tax bracket determines the percentage of that income that you will have to pay in taxes. Other filing statuses have different standard deductions. If you file as married filing separately, but your spouse itemizes their deductions, you cannot claim the Standard Deduction. An individual who was a nonresident alien or dual status alien during any part of the year is also ineligible to claim the Standard Deduction.
Some taxpayers have more expenses categorized as deductible than the Standard Deduction takes into account. In this case, or when a Standard Deduction is not allowable, you may choose to itemize your deduction. You can only choose to collect the Standard Deduction or to Itemize your deductions. You cannot itemize on top of your standard deduction. However, there are certain deductions you can claim on top of the standard deduction which are not classified in the itemization process. Education deductions, for example, do not require you to itemize in order to claim them. Business expenses are deducted separately from personal deductions, and apply to your business income specifically.
To itemize your deductions you will calculate the qualifying expenses you have spent throughout the year. Each category of expenses has an allowable percentage which is calculated and then added to your total allowable deductions. The deductions then apply to your taxable income. Make sure you contact a professional before you determine which deductions you will claim. However, here is a brief overview.
Medical Expenses: Your medical expenses include doctor appointments, health care provider appointments, prescription medication, medical travel, and other medical-related expenses. Qualifying expenses are paid on behalf of you and your dependents.
Employee Business Expenses: These are expenses that you’ve spent in order to do your job. Work-related mileage, other than commute is included, as are job search expenses and moving expenses if you relocate for work. Other expenses include uniform, clothing, and supplies.
Charitable Contributions: Your charitable contributions are deductible. This includes mileage to donate or perform charitable services, non-cash and cash donations.
Home/Property Expenses: Property taxes, mortgage interest, casualties and theft.
Income Tax: Your Federal Income Tax paid is deductible for the previous year.
Gambling Expenses: You are able to claim gambling expenses against any winnings you obtained that year.
Keeping good records is essential to itemizing your deductions. Keeping receipts is necessary to show proof of purchase for expenses that you are able to deduct. Mileage can be deducted from your expenses with proof in the form of a mileage log, which is the easiest way to keep track of your mileage. Just make sure that you state the purpose of the trip, starting and ending points, miles traveled and the date of travel for each trip.
Not understanding your deductions before filing can have serious consequences, and could ultimately result in your needing to return money to the IRS after investigation. This could be money that you’ve already received and spent, unaware that you’ve made a mistake. Never miss out on deductions, or be afraid to claim deductions you are entitled to because of fear of an audit or adjustment of your taxes. Instead, seek professional services such as Tax-Net LLC, and they will make sure that you are not only claiming the most current available deductions, but that you are following each specific guideline, qualification, and proof requirement.
Itemizing your deductions can qualify you for hundreds or even thousands of dollars more than your standard deduction. Keep records of your expenditures throughout the year, and you’ll be surprised how many expenses you can itemize and deduct from your taxes. The cost of hiring a professional to ensure that you are filing your deductions properly is minimal in comparison to the benefits you can receive and you can also claim your tax preparation fees as a deduction.
For assistance with deciding whether to itemize your deductions, and for professional preparation of your tax return, call Tax-Net LLC.
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