Two-thirds of American taxpayers use the standard deduction set by the Internal Revenue Service when they file tax returns. It's quick, easy and avoids a lot of record and receipt bookkeeping. Itemizing deductions, however, may save you money, especially if you have a home mortgage and pay state and local taxes. There also are many other options to increase your itemized deductions.
How to Decide
A quick way to determine whether it's beneficial to itemize deductions is to add your mortgage interest and real estate taxes, shown on an annual statement from your lender. If that is more than your standard deduction, you'll save money by itemizing. Standard deductions in 2012 were $5,800 for single filers, $11,600 for joint returns, $8,500 for qualifying head of household and $13,900 for couples over age 65.
Other Tax Deductions
You can deduct any state income taxes you paid. You also might have some city or local taxes -- such as sales or use taxes or special property or utility assessments -- that qualify. If you use a vehicle in connection with work, you may be able to deduct license fees and operating expenses.
Keep track of your charitable donations. Any money you give to the Red Cross, United Way or other qualified organizations is fully deductible. You also can deduct donations of vehicles, used clothing and furniture, and other items if you get receipts. You'll also need receipts for large cash donations, especially any over $250.
Don't overlook small deductions, which can add up. The total of miscellaneous deductions has to exceed 2 percent of your adjusted gross income but includes anything you pay to have your taxes prepared or legal fees for tax planning or investment counseling. Other miscellaneous deductions are things like dues for a union or professional organization, tuition for classes or training that will help in your present or a future job and fees you pay to maintain an individual retirement account if they're paid outside that IRA. You can deduct some work expenses, too, like required safety or work clothing, tools and equipment and subscriptions to publications related to your employment.
Casualty and Theft
You can deduct casualty and theft losses, when a home or other property is damaged by a storm or other event or valuable material or items are stolen. You have to file an insurance claim and can deduct only the amount that wasn't reimbursed by insurance. There may be special situations for exceptional disasters, like hurricanes.
Medical and Dental
Medical and dental expenses also are deductible but only when they exceed 7.5 percent of your adjusted gross income. If you have had some major medical bills and are close to that limit, schedule another procedure or buy an extra pair of glasses if that will tip you past the limit. You can include the cost of health insurance when you figure this deduction. For years beginning after Dec. 31, 2012, you may deduct only the amount by which your total medical expenses exceed 10 percent of your adjusted gross income
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