Itemizing your deductions can help you reduce your annual tax bill. Careful recordkeeping not only enables you to track your deductions and insure you take advantage of every one to which you’re entitled, but having all your receipts justifies these deductions should you ever face an Internal Revenue Service audit. Keep your receipts in one place to make compiling your tax return easier. After you file your return, store them with your completed return for seven years in case you’re audited.
Generally, save receipts if they document a deduction or credit on a tax return. When in doubt, keep it with your tax return for seven years.
Which Receipts to Keep for Taxes and What to Deduct
There are numerous deductions available when you look at the instructions for IRS Form 1040, but some are much more common than others.
Home mortgage interest is one of the largest deductions for many people. You can deduct the interest you pay on the mortgage for a first and second home, real estate taxes and property insurance. Banks and other commercial mortgage lenders will provide you with a 1099 form at the end of the year, showing the total interest you paid on your mortgage. If you have an owner-financed mortgage, you’ll need to track interest payments yourself.
Obtain an amortization statement showing how much of each mortgage payment goes toward interest and how much pays down the principal of the mortgage. The amortization statement, together with your cancelled checks, provides sufficient proof of your payments. Also keep copies of insurance and tax bills, along with the canceled checks showing you paid these items.
Charitable donations are another common deduction.A canceled check made out to a charity is enough for smaller donations, but the IRS requires you to have a written acknowledgment from the charity for any donations larger than $250. Many charities will automatically send you an acknowledgment for any size donation. Keep these acknowledgments with your canceled check. If you make a cash donation, obtain a receipt for your gift and note the name of the charity on the receipt.
If you donate merchandise, obtain a receipt showing the date of your donation and write in a general description of the items you donated. To determine the value of your donation, consult one of the online guides produced by charities such as Goodwill or Salvation Army for this purpose.
The IRS allows you to deduct medical expenses that are more than 7.5 percent of your adjusted gross income for 2017 and 2018. Keep receipts and/or cancelled checks for any medical expenses you paid out of pocket. If you traveled to and from the doctor, hospital or treatment clinic, you can deduct mileage expenses for these trips. A mileage log showing the dates of these trips and your starting and ending mileage for each trip will document this deduction.
Remember, you can’t deduct medical expenses you were reimbursed for by either your employer and your insurance company, and you can’t deduct bills you paid with pre-tax dollars, such as with money from a Health Savings Account or a Flexible Spending Account. Consult the IRS list of legitimate medical deductions for items you might overlook.
Standard Versus Itemized Deductions
Certain deductions, nicknamed "above the line" deductions, can be taken even if you don't itemize your deductions and take the standard deduction. These include business deductions if you're self-employed, such as business travel, office supplies, the cost of maintaining a home office if you have one and other equipment. Make sure to save business receipts if you take any business-related deductions.
Others require you to itemize your deductions. If you are considering whether to itemize, determine whether you'd save more on your taxes by itemizing your deductions or simply taking the standard deduction.
2018 Tax Law Changes
Under new rules for 2018, certain types of deductions, nicknamed miscellaneous itemized deductions, are no longer available. In addition, the standard deduction amounts are rising to $12,000 for single taxpayers, $18,000 for heads of households and $24,000 for married couples filing jointly.
2017 Tax Law and Miscellaneous Itemized Deductions
As of tax year 2017, f you’re looking for work, moving for work, or if your employer requires you to pay out of pocket for items you can only use at work, you can deduct the cost of these things on your tax return in the miscellaneous deductions section. Costs associated with managing your investments, such as safe deposit box rental at a bank or payments to an accountant or other tax preparer, fall into this category. Receipts showing you paid a bill, along with canceled checks or a credit card statement, will serve as documentation of these expenses. Generally, you can only deduct the total amount of these costs that exceed 2 percent of your adjusted gross income.
Those deductions will not be available in tax year 2018. On the other hand, the standard deduction amounts for tax year 2017 are lower, with a single filer standard deduction of $6,350, $12,700 for married couples filing jointly and $9,350 for heads of household.
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