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How to Maximize Your Itemized Tax Deductions

Updated for Tax Year 2019


OVERVIEW

Since you can decide every year whether you want to take the standard deduction or not, careful tax planning can help you maximize your deductions in years you itemize.


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Many of your everyday expenses can be itemized as deductions on your income tax return, saving you lots of money at tax time. However, unless you have a large amount of qualifying expenses, you might be better off taking the standard deduction, as most taxpayers do. Since you can decide every year whether you want to take the standard deduction or not, careful tax planning can help you maximize your deductions in years you itemize.

Categorize deductions

Only certain expenses can be classified as itemized deductions. To maximize your deductions, you'll have to have expenses in the following IRS-approved categories:

  • Medical and dental expenses
  • Deductible taxes
  • Home mortgage points
  • Interest expenses
  • Charitable contributions
  • Casualty, disaster and theft losses
  • For tax years before 2018 - Certain miscellaneous expenses and non-reimbursed employee business expenses including:
    • Investment expenses
    • Union dues
    • Business use of home
    • Business use of car
    • Business travel expenses
    • Business entertainment expenses

Your expenses in certain categories must cross various thresholds in order to itemize. For example, your medical and dental expenses are only deductible to the extent they exceed 7.5 percent of your adjusted gross income (AGI) for 2019. After 2019, the threshold rises to 10 percent of AGI.

Starting in 2018, miscellaneous and non-reimbursed employee expenses are no longer deductible for federal taxes. For tax years before 2018 these expenses must exceed 2 percent of your AGI before they become deductible. Some states have not fully aligned with the recent tax law changes and allow itemized deductions for these types of non-reimbursed employee expenses.

Bunching deductions

Bunching your deductions can maximize the value you get out of them, particularly in categories where you have to cross a minimum threshold. For example, if you have medical expenses every year that equal 7 percent of your AGI, you'll never get to itemize those deductions. If you can push any of those regular expenses into the following year, you'll perhaps have more than 10 percent of your AGI in expenses in one year, instead of 7 percent. In that scenario, a portion of those expenses may become deductible.

Spend when itemizing

If you intend to itemize in any given year, it makes sense to generate as much spending as possible in deductible categories to get the maximum effect. While spending just to generate a deduction isn't advisable, if you've been holding off on certain purchases, it makes more sense to make those purchases during a year in which you itemize. For example, if you have been delaying certain medical treatments, you'll get more mileage out of your deductions if you spend that money in a year when you're already over the medical deduction threshold.

Follow a checklist

If you take certain deductions every year, you might get in the habit of overlooking other available options. Keeping a checklist of available deductions can help you unearth both one-time and everyday expenses that you can actually deduct.

For example, if you have gambling losses, you can deduct those up to the extent of your gambling winnings. You might regularly take deductions for charitable contributions, but you can also usually deduct your mileage expense for any travel to and from a charity.

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