For most average folks, it doesn’t make sense to itemize deductions. No matter how many stained t-shirts and ratty sneakers you have stacked in your closet, you probably won’t be able to donate enough to equal or surpass your standard deduction, so going to the trouble of itemizing is a waste of time and effort – right?
Actually, you can itemize much more than the stuff you drop off at your local thrift store. In fact, with some rampant decluttering and a hunt through your filing cabinet, you might be able to produce enough deductions to dramatically increase this year’s tax return. Here’s a simple guide to all available itemized deductions.
Out-of-pocket charitable contributions are the fastest and easiest way to grow your itemized deductions. Large checks or recurring payroll deductions are simple – but relatively few people can afford to simply give away more than $6,000, which would make itemizing more profitable than taking the standard deduction. Therefore, you might consider being more creative with your contributions.
Donated items are deductible, and large-item donations, such as home appliances or cars and boats that go to good causes, are worth more on your taxes than your clothes or books. You can also deduct ingredients used to prepare food for the hungry, the cost of items you buy at charity fundraisers, and virtually any money you spend for sanctioned causes. By doing enough good, you might save big on your taxes.
If you don’t receive health insurance from your employer, any money you spend paying for health care – to include your insurance premiums – is deductible. However, even if you do receive employer health benefits, you can always deduct qualifying medical expenses if they exceed 10 percent of your adjusted gross income, which will likely occur if you have a health issue and a high-deductible insurance plan. For example, if your income is about $35,000 and your medical expenses exceed $3,500, you can probably deduct them on your taxes.
Yet, it is important to note that claiming medical expenses on your taxes is a good way to catch the attention of IRS agents and increase your likelihood of being audited. To ensure these itemized deductions don’t cause you undue pain, you should understand which medical expenses are deductible before you make an audit-worthy mistake.
State and Local Income Taxes
Surprisingly, you can use your taxes to pay less on your taxes. Any state or local taxes withheld from your wages as well as any prior year’s income taxes paid during the taxable year can be itemized as deductions. In states that don’t tax income, like Nevada and Texas, sales tax incurred throughout the year can be deducted for the same benefit. This deduction does adhere to a few confusing rules, so the IRS created a state tax deduction calculator to help you determine how much you can deduct.
If you are of the 85 percent of Americans who own automobiles, you can deduct the cost of your vehicle’s registration on your taxes. This deduction doesn’t count for cars alone; boat owners are also eligible to use their registration fees as tax deductions. However, how much of your registration is deductible will depend on how your state calculates its registration fees. Tax preparation software or professional tax preparers can help you determine the amount you can deduct for your registration.
Employee Business Expenses
For most workers, business expenses are fully or partially reimbursed. If your business lunches, travel, and purchases are paid for through a company credit card or refunded through your employer’s accounting department, your expenses aren’t deductible on your individual taxes. However, expenses directly related to your employment, such as seminars, non-commuting mileage, and publications, that aren’t repaid by your employer, are eligible to be written-off if they account for more than 2 percent of your adjusted gross income.
Casualty, Disaster, and Theft Losses
Some years are worse than others. If you experienced excessive, unpreventable, and exceptional losses during the previous year – to include damages or injuries from natural disasters, theft, fire, and more – the IRS is sympathetic enough to allow you to write off related expenses in your itemized deductions.
As always, there are some caveats: You cannot deduct any expenses that were covered by insurance policies; you cannot deduct losses from family members or pets; and you cannot deduct losses from disasters you caused. Before you begin counting your misfortunes, you should understand what the government means by “casualty.”
Tax Preparation Fees
Taxes are hard; the government knows this. Therefore, you can conscionably and legally deduct any money you spend in your tax preparation. Whether you hire a tax accountant or pay for DIY tax software, you can write off those expenses on your itemized form.