As tax season approaches, it’s important to understand the various deductions available to taxpayers. One type of deduction is the itemized deduction, which allows taxpayers to deduct specific expenses from their income. Here is an overview of itemized deductions and what you need to know.
What are itemized deductions?
Itemized deductions are certain expenses that taxpayers can subtract from their taxable income. Instead of claiming the standard deduction, taxpayers can choose to itemize their deductions on their federal income tax return. Itemized deductions can include medical expenses, state and local taxes, charitable contributions, mortgage interest, and more.
Who can claim itemized deductions?
Not everyone can claim itemized deductions. Taxpayers who claim the standard deduction cannot itemize their deductions. Additionally, taxpayers must have expenses that exceed the standard deduction to make itemizing worthwhile.
For tax year 2020, the standard deduction is $12,400 for single filers and $24,800 for married couples filing jointly. If a taxpayer’s itemized deductions do not exceed these amounts, it may be more beneficial to take the standard deduction.
What types of expenses can be itemized deductions?
There are several categories of expenses that can be itemized deductions. Here are some of the most common:
Medical expenses: Taxpayers can deduct medical and dental expenses that exceed 7.5% of their adjusted gross income (AGI). This includes expenses such as doctor’s visits, prescriptions, and medical equipment.
State and local taxes: Taxpayers can deduct state and local income, sales, and property taxes up to $10,000.
Charitable contributions: Taxpayers can deduct donations made to qualified charities, up to 60% of their AGI.
Mortgage interest: Taxpayers can deduct interest paid on a mortgage for their primary residence and a second home.
Home office expenses: Taxpayers who work from home may be able to deduct certain expenses related to their home office, such as utilities and internet.
Business expenses: Taxpayers who are self-employed may be able to deduct expenses related to their business, such as office supplies and travel expenses.
How to claim itemized deductions
To claim itemized deductions, taxpayers must file Form 1040 and Schedule A (Itemized Deductions) with their federal income tax return. Taxpayers must keep accurate records and receipts of their expenses to support their deductions.
It’s important to note that some itemized deductions have limits or phase-outs based on income. Additionally, certain expenses may not be deductible in certain situations. It’s always best to consult a tax professional for specific advice on your individual tax situation.
In conclusion, itemized deductions can be a valuable tool for reducing your taxable income, but it’s important to consider whether itemizing or taking the standard deduction is more beneficial. Keeping detailed records of expenses and seeking professional advice can help ensure that you are maximizing your deductions and minimizing your tax liability.
