At tax time, because the primary purpose of filing your tax return is to determine what, if anything you owe to the IRS, your ultimate goal should be decreasing the amount of taxable income you bring home at the end of the year. If you’re like millions of other Americans, the best way to do this is going to be through itemized deductions. Give us a call at Liberty Taxes & Business Services to help walk you through which deduction options are best for you and what qualifying expenses you can claim on your Schedule A.
Standard vs Itemized; which should you choose?
To begin, you’ll need to decide whether you’re going to go with the standardized or itemized deduction. Not sure? Look into hiring an accountant or tax preparer to help lay out your options. The two types of deductions are generally not created equal, and to benefit you’ll want to do some simple math to determine which is going to get you the greatest benefit on your return. The standardized deduction option is a set monetary amount the IRS grants you to subtract from your taxable income. This amount is dictated based on what filing status you choose: single grants you the least amount to deduct, whereas married filing jointly and qualifying widows and widowers gets you the maximum deduction. The other choice you have is the itemized deduction option. This option grants you the opportunity to deduct qualifying life and small business expenses from your taxable income. You’ll want to take the maximum deduction possible, so to find out which sum is greater just fill out a Schedule A.
You Chose the Standard Deduction, what’s next?
If after adding up all of your expenses, if they equal less than the granted standardized deduction amount (anywhere from $6,300 to $12,600, depending on filing status), this is the end of the deduction line for you. You can still count on tax credits like the child tax credit or the earned income credit if you qualify and are eligible, but you can no longer claim any other itemized deductions on your return. The important thing to remember is that you can only choose one way to deduct and in some ways, choosing the standard deduction is much simpler than going through the year’s expenses to itemize.
Itemized deductions - what can you deduct?
Let’s take a look back to that Schedule A. The Schedule A is the form you’ll have started filing out to determine which type of deduction you’re going to take. Generally, these expenses are what people add up first as they are usually the biggest expenses throughout the year. If you aren’t close to the standardized deduction amount by adding these up, you may have a hard time getting there without a lot of digging.
Small business or self-employment costs, like capital expenses, some startup costs, business cards, advertising, and even employee wages are deductible. The same goes for mortgage insurance and interest. Your mortgage company may even send you the applicable information you’ll need when it comes time on form 1098. Medical and dental expenses you paid out of pocket are also deductible. There are a few stipulations to these deductions though, so before playing with these numbers you may want to find a tax professional for common deductions to double check that your expenses out of pocket exceed the AGI minimum. You can also use qualifying charitable donations as a deduction on your return. With this deduction you need to ensure your charity of choice is recognized and qualified to accept your donations of money or goods, tax exempt. Churches and other charities have to maintain a nonprofit status to be able to give a receipt that allows you to utilize what you’ve given on your return. Always keep in mind that politicians or their campaigns are never considered a tax exempt charity, so as much as you’d like to donate to them, you unfortunately won’t be able to write that off. State and local income taxes can also be deducted as long as the income you paid state tax on wasn’t federally exempt. A few other expenses you’re allowed to write off include job hunting expenses, student loans repaid by your parents, automobile expenses as they relate to your small business and jury pay; but only if you had to give that money back to the company coffers. Union dues are deductible too, as well as some continued education expenses, and even some on the job supplies or equipment you need but your company doesn’t reimburse you for. Other commonly missed deductible items include magazine subscriptions, seminars, classes and other media that helps you advance your skill set or improve your business.
Your options are pretty vast and numerous when it comes to what you can deduct. If the more common and costly expenses add up to push you over that initial standard deduction amount, it’s well worth the extra energy and time it’ll take to continue finding things you can itemize. Just make sure you have the proper documentation in place in the event that your taxes are called into question or audited later down the line. Find a tax preparer here at Liberty Taxes & Business Services to get your tax filing off to a good start. We’ll help advise you on the most beneficial tax decisions to get you the most savings when you file your federal return. Just click on the link below to check out our profile. We’re eager to get your taxes squared up and on your way to maximum savings!
