When it comes to reducing your taxable income, itemizing your deductions can really maximize your tax savings.
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When searching for ways to reduce your taxable income, itemizing your deductions can really maximize your tax savings. The benefit of itemizing is that it allows you to claim a larger deduction that the standard deduction. However, it requires you to complete a Schedule A attachment to your return and to maintain records of all your expenses.
Types of itemized deductions
Itemized deductions include a range of expenses that are not otherwise deductible. Common expenses include the mortgage interest you pay on up to two homes, your state and local income or sales taxes, property taxes, medical and dental expenses that exceed 7.5 percent of your adjusted gross income, and the charitable donations you make. Itemized deductions also include miscellaneous deductions such as work-related travel and union dues. Once you decide to itemize, you are eligible to claim all of them.
In order to claim itemized deductions, you must file your income taxes using Form 1040 and list your itemized deductions on Schedule A. You cannot file your taxes using Forms 1040A or 1040EZ if you want to itemize your deductions; only the standard deduction can be taken on these shorter forms.
Once you have entered your expenses on the appropriate lines of Schedule A, add them up and copy the total to the second page of your Form 1040. This amount is then subtracted from your income to arrive at the final taxable income number.
Deciding whether to itemize
When deciding whether to itemize, you need to remember that you will be giving up the standard deduction. Therefore, after adding up your itemized deductions, you need to make sure the total is greater than the standard deduction for your filing status. If it’s not, then you will actually pay more in tax if you itemize.
Form 1040A allows you to claim certain common deductions and credits (like education credits), while still claiming the standard deduction. The instructions for Form 1040A explain which deductions and credits you can claim on the form.
When you use TurboTax to prepare your taxes, we’ll ask simple questions about your tax situation and we’ll recommend whether itemizing or claiming the standard deduction will get you a bigger tax refund (or lower tax due).
Alternative minimum tax implications
If you are subject to the alternative minimum tax, some or all of the itemized deductions that you claim may be reduced or eliminated. For example, your medical and dental expenses deduction is reduced and you cannot deduct the interest on home equity loans. Additionally, you cannot deduct any of your state and local income or sales taxes, tax preparation fees and unreimbursed employee expenses.