Each year, taxpayers have the option to reduce their taxable income by claiming either the standard deduction or the sum of their itemized deductions. To minimize your tax bill, you need to choose the option that results in the largest deduction. By estimating your itemized deductions, you can determine which choice is best for you. The fastest way to create an itemized estimate is to survey your deductible expenses for each of the categories of itemized deductions.
Finding Your Itemized Estimate
You can deduct the portion of your medical expenses that exceed 7.5 percent of your adjusted gross income for tax years 2017 and 2018. Qualifying medical expenses include payments for medical, dental and vision care, as well as insurance premiums. The deduction does have some limits, however, as you can’t deduct insurance premiums your employer pays for you nor can you deduct most elective cosmetic surgery. These deductions should become an integral element of your itemized sheet.
You can deduct certain taxes as part of your itemized estimate including state and local real estate taxes, personal property taxes and income taxes. You have the option to deduct your state and local sales taxes you paid instead of income taxes if that results in a larger deduction. However, the total of your property taxes, personal property taxes, income taxes and sales taxes can’t exceed $10,000 total ($5,000 if you are married filing separately) through 2025.
You can also incorporate mortgage interest on your primary residence as part of your itemized deduction calculator. For mortgages taken out prior to December 15, 2017, you’re limited to deducting the interest on the first $1 million of debt. However, for mortgages taken out after that date, the deduction is limited to the interest on the first $750,000 of debt through 2025.
You can write off the amount you contribute to charity in cash or in kind contributions for your itemized estimate, although certain limitations may apply. Charities must be organizations – you can’t deduct amounts that you give to people, no matter how needy they are. You also can’t count the value of your time or contributions to politicians as a charitable contribution. Starting in 2018, your deduction can’t exceed 60 percent of your adjusted gross income for cash contributions to public charities. Donations of property or to private foundations are restricted to lower percentage limitations.
Looking For Miscellaneous Deductions
Prior to 2018, taxpayers were allowed to deduct the amount of their miscellaneous deductions in excess of 2 percent of their adjusted gross income as part of their itemized sheet. Miscellaneous deductions include costs like employee expenses, work-related employee expenses and tax preparation fees. For example, if you needed to subscribe to trade publications or maintain membership in professional organizations for your job, those could increase your itemized deductions. However, beginning in the 2018 tax year and continuing through 2025, these deductions have been eliminated from the tax code.
Obtaining Necessary Forms
You will use Schedule A of IRS Form 1040 in order to report your itemized deductions. If you have any questions about the process for accurately reporting these, or you discover that your actual deductions differ greatly from your itemized estimate, you may need to consult with a CPA in order to ensure that you are completing these forms correctly.
Reporting Your Deductions
You are required to report these itemized deductions as part of your annual tax return. Although specific details regarding this filing process may change on a year-to-year basis, itemizing and reporting your deductions is integral to completing your tax return correctly.
- IRS: Topic Number 501 - Should I Itemize?
- IRS: Topic Number 502 - Medical and Dental Expenses
- IRS: Topic Number 503 - Deductible Taxes
- Legal Information Institute: 26 USC 164. Taxes
- Legal Information Institute: 26 USC 163. Interest
- IRS: Publication 529 (2018), Miscellaneous Deductions
- Cornell Law School: Legal Information Institute: 26 USC 67
- Cornell Law School: 26 U.S. Code § 170 - Charitable, etc., contributions and gifts
- 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.
Based in the Kansas City area, Mike specializes in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."