Federal income taxes can be one of the largest expenses that you must pay as a consumer, so it makes sense to know what effect different scenarios have on your tax situation. Itemizing deductions can save you some money on taxes. Estimate your itemized deductions if you are considering incurring a deductible expense, such as taking on a home mortgage or making a charitable contribution.
Estimate your adjusted gross income for the year. Some of your itemized deductions are based on that amount. Add up all of your estimated income from all sources, including pay from your jobs, self-employment and interest income. Subtract from your income any estimated adjustments you are allowed, such as deductible IRA contributions, student loan interest, health savings account contributions and alimony payments that you make. The result is your estimated adjusted gross income.
Add your estimated medical expenses that have not been or will not be reimbursed. Include any doctor's visits that you paid for or any of your co-pays for surgery or hospital stays. Multiply your adjusted gross income by 7.5 percent for tax year 2012 or 10 percent for tax year 2013 (seniors 65 and over may still use 7.5 percent until 2016), and subtract this number from your non-reimbursed medical expenses. If the result is zero or less, you do not have any deductions for medical expenses. If it is a positive number, that amount is your deductible medical expenses.
Estimate all of the taxes that you pay throughout the year. Include property taxes, state and local income taxes and any excise taxes you pay based on the value of property, such as what you might pay when you register a vehicle. These taxes qualify as itemized deductions.
Calculate the mortgage interest that you expect to pay for the year. You can use an amortization schedule, or multiply the amount of interest you pay in one month shown on your mortgage statement by 12. Any points that you paid on a home purchase are also deductible as interest and should be added into this amount.
Estimate the amount of charitable contributions that you expect to make for the year. Include cash and property gifts. Your total contributions made to charities recognized by the IRS are usually deductible from your taxable income as an itemized deduction.
List any miscellaneous itemized deductions that you expect to have. Examples include non-reimbursed employee business expenses, training for your job, business use of your home for your job, tax preparation fees and investment expenses. Multiply your estimated adjusted gross income by 2 percent, and subtract this number from your estimated miscellaneous itemized deductions. If the result is less than zero, you have no miscellaneous itemized deductions. Any amount greater than zero is deductible.
Add all of the totals from the estimates of each category of itemized deductions. The result is your total estimated itemized deductions.
Items you will need
- Mortgage statement
- Tax bills
- Medical billing statements
- Recent pay statement
- If your itemized deductions are less than your allowable standard deduction, you will not save any more on your taxes by itemizing. The standard deduction for 2012 for married people filing joint returns is $11,900. For a head-of-household filer, the deduction is $8,700, and $5,950 for single filers or married people filing a separate return. These numbers are subject to change for the 2013 tax year.
- Consider the standard deduction when estimating the tax-savings that you will receive by making a deductible purchase, such as buying a home to receive the mortgage interest deduction. If you are married filing a joint return, have $5,000 in itemized deductions and purchase a home with a mortgage that costs $8,000 per year in interest, you are only gaining $1,100 in deductions over the standard deduction by itemizing.