Do you want to save thousands of dollars on your taxes? Who doesn’t, right? Well, we provide you with great tax tips, so you can save barrels of money.
Learn how to itemize taxes, so you have more money in your pockets. We will show you how to save thousands of dollars using the following 7 itemized deductions. Follow this Beginner’s Guide on Itemized Tax Deductions and keep more of your money.
Valuable Tax Tips
Why do some billionaires pay no taxes, while others pay such high taxes? Many tax filers might wonder about this simple point. There are many reasons for why this occurs, but itemized tax deductions are amongst the secrets of the wealthy.
If you need to reduce your tax liability, then you are not alone. You might be pleasantly surprised by all of the deductions available. There are numerous types of deductions that encompass all facets of your life.
What are itemized deductions?
Do you want to know a secret? There are basically two primary tax application methods: 1. Simple or 2. Complicated. This is true for many of the Internal Revenue Service (IRS) forms, but specifically appertains to tax deductions.
The simple way to fill out your taxes is to use the easy form, along with the standardized deduction (which is $12,000 for singles in 2019). If your life is simple, then this might be the best path.
Who should itemize their returns?
For those with busy, complicated lives, including an extensive family, business and/or home ownership, then you might want to choose to itemize your deductions. Basically, the government defines itemized deductions as “specifically listing each and every deduction.” Each deduction corresponds to an activity, expense or feature.
Generally, this itemized deductions definition will allow you to subtract a higher amount from your adjusted gross income (AGI). This should reduce your tax liability, since your base taxable amount is lower. The next question to ask yourself is:
Should I itemize my deductions?
You are free to do what you want. If you have the time, then itemizing is wise. You can always return to the standard deduction if your itemizing did not reveal ample savings.
How to itemize deductions?
If you use IRS Form 1040, then you should use Schedule A to itemize your to tax deductions. Carefully review all of the deductions that are available. Then, read the details to determine if they apply to you. These are just 7 of the many deductions that you might be able to claim.
1. Medical & Dental Expenses
You can itemize your medical & dental expenses to help reduce your tax liability. These medical care expenses can cover diagnosis, mitigation, treatment or disease prevention of various ailments, illnesses or diseases for the following:
- Physician fees
- Nursing home meals
- Weight loss program
- Prescription drugs
- Medical devices
- Insurance premiums
Limits to Medical Deductions
Nursing home meals and lodging might be covered. Weight loss programs, which have been diagnosed by physicians are also covered. Unfortunately, diet food and health club memberships are usually not covered. It is important to note that only total medical expense deductions, which exceed 7.5% of your adjusted gross income can be deducted.
2. Property Taxes
There is a give-and-take between local, state and federal income taxes. Many times while filling out your taxes, you will see that you must treat different expenses differently on different local, state or federal forms. This includes state and local property taxes, which are deductible on federal tax forms.
3. Charitable Donations
Giving back to your community is definitely commendable. The government understands that certain public goals can only be accomplished with charitable donations.
First of all, you need to divide your charitable giving based on what you received in response. For example, you might have attended a charity ball, sporting event or banquet. The IRS only allows you to deduct the amount exceeding the fair market value of any benefit received.
Secondly, it is important that you keep good records for your monetary giving. Tax filers should include either a bank record or written letter from the non-profit organization, which lists the amount and date. Most charitable organizations will provide you this, free of charge (especially for amounts of more than $250).
Use IRS Form 8283 for more expensive “Noncash Charitable Contributions.” Basically, Section A is for $500 to $5,000 and Section B is for more than $5,000. You can read IRS Publication 526 if you are donating automobiles.
4. Educator Expenses
Educator expenses (up to $250 for singles) are allowed. These expenses might include books, supplies, and computers used in the classroom. If you work 900 hours during a school year, you can qualify as an educator, according to the IRS.
5. Self-Employment Taxes
Business owners can deduct 50% of their self-employment taxes. This is one of the primary reasons for business owners itemizing their deductions. When you find a profitable deduction, it is well worth its weight in gold.
6. Home Office
Due to the World Wide Web, more people are working from home. The IRS states that you can be self-employed or a partner to qualify for this deduction. The concept of “exclusively” and “regularly” using a home office is required. In fact, the IRS requires you to set aside a specific room that can only be used for business purposes.
At-home daycare facilities can use this deduction. To calculate the amount, you need to separate the operating building expenses for personal use from the operating building expenses for business use. Then, you can deduct your full business expense.
Farmers should use Schedule F for IRS Form 1040 – “Profit of Loss From Farming.” You also might want to read IRS Publication 225 – “Farmer’s Tax Guide” for more information.
Those who use their automobiles, vans or trucks for business purposes can take the standard mileage deduction (which is 58 cents per mile for 2019).
Your mileage deduction includes expenses, such as fuel, maintenance, licenses and depreciation. You also might be able to deduct some public transportation expenses; keep any receipts for bus cards as proof.
How Much Can You Save?
If you itemize your deduction, you can literally save thousands of dollars.
Based on the latest statistics released by the IRS, which was based on the 2015 tax year, if you itemize your medical expenses you can claim at least $8,646 in deductions.
Be mindful however that the new tax laws in place have placed caps on some deductions and done away with some.
But if we use several of these 7 deductions, you can still end up saving nearly $20,052 on a $100,00 AGI.
To Extend or Not To Extend – That is the Question
It might take more time to itemize your taxes, but you are more likely to be rewarded by undiscovered savings. You can take the next step by applying for a tax extension so you can spend more time going over your tax returns. Buy yourself another six months and that time could be worth thousands in savings.