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.
The article below is accurate for your 2017 taxes, the one that you file this year by the April 2018 deadline, including a few retroactive changes due to the passing of tax reform. Some tax information below will change next year for your 2018 taxes, but won’t impact you this year. Learn more about tax reform here.
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.
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
- Certain miscellaneous expenses
- Casualty, disaster and theft losses
- Non-reimbursed employee business expenses including:
- Business use of home
- Business use of car
- Business travel expenses
- Business entertainment expenses
- Educator 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 for tax years 2017 and 2018. Non-reimbursed employee expenses must exceed 2 percent of your AGI before they become deductible.
Beginning Jan. 1, 2019, all taxpayers may deduct only the amount of the total unreimbursed allowable medical care expenses for the year that exceeds 10% of their adjusted gross income.
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 5 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 have 7.5 percent of your AGI in expenses in one year, instead of 5 percent. In that scenario, 2.5 percent 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 7.5 percent 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. Subscribing to a magazine or joining a professional society may also be deductible expenses. 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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