Tax deductions and credits enable taxpayers to lower their tax liabilities if claimed appropriately. Many taxpayers are usually torn between claiming standard or itemized deductions. The standard deduction amount varies from one year to another, age and physical disabilities like blindness. The choice between the two will entirely depend on individual circumstances, but there are situations when itemizing is more beneficial than claiming standard deductions.
Medical: Medical costs can only be deducted if they go above 7.5% of your Adjusted Gross Income (AGI). Some taxpayers see this threshold as a deliberate attempt by the IRS to bar them from taking medical costs off the tax bill; it appears insurmountable. In reality, any regular employee who pays personal insurance can surpass this threshold. Medical expenses are broad, and cover child and dependent costs, all sorts of therapies, assisted care facility expenses, and special schools for kids with disabilities, amongst others.
Taxes: Unlike low income earners, high income taxpayers shouldn’t find it hard to itemize because of the equally high withholding taxes. Some of the deductable expenses include disability insurance expenses and automobile registration fees, which are often overlooked even though they are deductable. Property taxes can be deducted on particular cases, but they cannot be deducted if they include other assessments. If you reside in a state without income tax, use sales tax instead. Doing this excludes your tax refunds from the taxable income the following year.
Mortgage Interests Deductions: These deductions are restricted to the interest on acquisition debt in addition to $100,000. Interest deductions drop with a drop in rates. You cannot deduct points when refinancing and the deduction must be stretched over the loan’s life.
Charitable Donations: If you are one of the taxpayers who donate ten percent of your income, then you definitely have sufficient expenses to claim sizeable itemized deductions. Any donation claims amounting to or exceeding $250 must be supported by relevant documents and receipts. You also have to present detailed schedules or non-cash donations amounting to $500 or more.
Casualty and Theft: To claim personal losses, they must be more than 10% of your annual gross income, plus $100. Be warned; the form is a bit complex and might amount to an appraisal and even an IRS audit.
Finally, there are miscellaneous itemized deductions you can claim. They cover all other deductions, but most of the costs are cut by about 2% of the AGI. This is best suited for taxpayers who pay high union dues and have a lot of non refundable business expenses, especially work travels and mileage.