What Expenses Can I Deduct When Calculating My Taxable Income?
Taxable income is the amount you earned that the IRS uses as a basis for computing your tax obligation. Your taxable income is your gross income, less either the standard IRS deduction or the total of your itemized deductions. If you have significant deductible expenses, you generally have a lower tax burden by itemizing your expenses on your tax return.
If you own a home, chances are pretty good you can benefit by claiming a couple of key homeowner expenses. Mortgage loan interest is a major deduction for many people. This is the amount you paid your mortgage lender in interest during the year. You can deduct interest expenses on both first and second mortgage loans. Additionally, you can deduct the amount you paid for real estate or property taxes. Both interest and taxes are normally found on a statement you received from your lender in January.
Local Taxes and Fees
In many states, workers pay income taxes to the state department of revenue along with the IRS. You may also pay local or county income taxes. State or local income taxes can be deducted in calculating your taxable income. Additionally, some states have personal property taxes for boats, cars and other personal property items. These expenses are also normally deductible. Vehicle registration fees, for instance, are essentially personal property taxes on vehicles that are deductible.
Most donations of money or goods to qualified charities are deductible. This includes money given to churches and other nonprofits the IRS has determined are eligible to receive tax-exempt contributions. You can also deduct the fair market value of household goods you donate that are in good or better condition. You must document your donation with a receipt, bank record or payroll deduction record. Additionally, if you donate time to charities, you can deduct mileage at the IRS-allowed rate and other non-reimbursed expenses directly tied to your volunteer effort.
Medical expense are deductible, but only to the extent that they exceed 7.5 percent of your gross income (rising to 10 percent for the 2013 tax year for those under 65). If your gross income is $100,000 for instance, only amounts paid for medical or dental care over $7,500 are deductible. Thus, few people with substantial income can claim medical fees. For those who can, the IRS has a long list of eligible expenses, including doctor visits, dental care, lab work, medical supplies and prescriptions. An option to get a tax benefit on health costs is to set up a health savings account. Employers often offer this benefit, which allows you to set aside money for medical costs before taxes are taken out of your income.
Neil Kokemuller has been an active business, finance and education writer and content media website developer since 2007. He has been a college marketing professor since 2004. Kokemuller has additional professional experience in marketing, retail and small business. He holds a Master of Business Administration from Iowa State University.