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Maximize Deductions

Tax Deductible
Expenses List
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Tax deductible expenses list for tax deduction help

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What can I deduct on my taxes?

How to maximize tax deductions? This question is an effort to reduce income and in effect reduce taxes, which should generate a bigger tax refund or a smaller balance due. Every year when you file your taxes, the IRS allows you to deduct either a standard or an itemized deduction from your taxable income. The standard deduction is set by the IRS and will differ each year according to tax filing status, with single having the lowest standard deduction and married filling joint having the highest.

Typically, there are a few items that trigger “Itemized Deductions”.  Typically itemized deductions include mortgage interest, property state and/or local income taxes, medical or dental expenses in excess of adjusted gross income (AGI) limits, and charitable contributions. Why do we say trigger? Because to actually help you on your tax return your itemized deductions must exceed your standard deduction.

The key is to identify what filling status standard deduction you need to exceed and once identified you may be eligible to itemize your deductions. Gather all the different types of eligible itemized deductions in an effort to maximize your deductions.

Below, we discuss the most common itemized deductions and what to look for.

 

Unreimbursed Dental & Medical Expenses

Dental and medical expenses

Yes, most people have medical expenses, but unfortunately medical expenses do not help most people on their tax return unless, they have what we call a catastrophic medical year. Here’s why. To qualify medical expenses, must be paid out-of-pocket and be unreimbursed by health insurance. Plus, medical expenses are subject to 7.5% of your adjusted gross income (AGI). The 7.5% threshold was supposed to increase to 10%, starting with the 2019 tax year; however, it will remain in place until at least the 2022 tax year due to an extension that was signed into law on Dec. 20, 2019.

What does that mean? That means unreimbursed medical expenses that you paid out-of-pocket must exceed 7.5% of AGI before the medical expenses are going to start to help you on your tax return. So if you make $100,000; your unreimbursed medical expenses paid out-of-pocket must exceed $7,500 before qualified medical expenses will start to help you on your tax return. So as we say, “Don’t go running all over town collecting medical receipts just to find out, that medical expenses are typically not going to help you on your tax return, unless you think they are going to exceed 7.5% of your income.”

Long-term care premiums

The calculation for long-term care premiums is different than medical expenses. If the premium exceeds 10% of your adjusted gross income, you may be able to deduct it on your taxes. The age limit for this deduction depends on your age, and the insurer must also be “qualified.”

Property Taxes and State & Local Income Taxes

Taxpayers who itemize are able to deduct two types of taxes paid on their Schedule A. Personal property taxes, which include real estate taxes, are deductible along with state and local taxes that were assessed for the previous year. If you own your own home or auto, you generally have property taxes that are tax deductible.

Typically, taxes are paid to the county you live in and are deductible in the year paid. The most common property taxes we see are real estate, auto, boat and/or boat motor. Often times, if you do not have the tax receipt, we can go to your county website and look these taxes up for you.

However, if you itemized deductions on your taxes last year and received a refund from the state, that amount must be counted as income this year. For 2018 through 2025, taxpayers can only deduct $10,000 of combined state and local taxes. Additionally, foreign real estate taxes not related to business are not tax deductible.

Also note that if you prepaid your state or local income tax for next year, that amount is not currently deductible.

Mortgage Interest

Mortgage interest is deductible on your tax return and is often the first clue that it may be beneficial for you to itemize your tax deductions. Mortgage interest is reported to you annually on a Form 1098 issued by your mortgage company. Often times, you may receive more than one Form 1098 reporting mortgage interest if you have a second mortgage, a home equity loan or your mortgage company sold your loan mid-year.

Points that were paid for a home that was bought or refinanced during the year can be deducted by taxpayers, as long as it falls within certain guidelines. If the mortgage originated before Dec. 16, 2017, then a higher limit of $1 million applies. The same rule would apply if you refinance an older mortgage–so long as the loan amount is unchanged. After 2025 however, regardless of when the loan took place, the old $1 million limitation will come back into effect..

When talking about mortgage interest, we often get asked about credit card interest and interest on auto loans (i.e. personal loans). Credit card interest and interest on personal loans (i.e. auto loans) is not tax deductible.

Home-equity loan / Line of credit interest

The interest from home-equity loans and lines of credit is tax-deductible as long as the money borrowed is used to buy, construct, or significantly improve the house securing the loan.

Charitable Contributions

Charitable contributions

Taxpayers who itemize can deduct any donation made to a qualified charity between 2018 and 2025, but the total deduction cannot exceed 60% of the donor’s AGI. If you contribute more than the limit allows, you can carry over the excess amount to next year. The percentage of your AGI that you’re allowed to donate depends on the type of property and organization receiving your donation and can range from 20-50%.

There are two types of charitable contributions; money contributions (i.e. cash, check or charge) and property contributions (i.e. clothing, furniture, car, land, etc.). Charitable contributions must be made to a qualified non-profit organization. There are millions of qualified non-profit organizations.

  •  Contributions of Money –The most common qualified organization for most people to contribute is their church. Other popular non-profit organizations are your local school, the American Cancer Society, American Heart Association and United Way, just to name a few.

  •  Contributions of Property – Contributions of property (i.e. clothing, furniture and appliances) are deductible to the extent of fair market value at the time the items were given, not what you originally paid for the items. Think of it as thrift market values (i.e. if you were going to have a garage sale, what would you price it at to sell?). Goodwill and Salvation Army are popular non-profit organizations that accept property contributions and give you a receipt for your contribution. Contributions of autos, land or real estate are also tax deductible, but require additional reporting, valuations and documentation.

  • The Coronavirus Aid, Relief, and Economic Security (CARES) Act – signed into law on March 27th 2020 CARES created a new deduction of up to $300 for charitable donations, this deduction can be used by taxpayers who take the standard deduction. The act also concentrated on other relaxations concerning limits involving charitable deductions in hopes of encourage giving during the COVID-19 pandemic. There were two forms cash contributions and donations of food ,and they applied equally to both individuals and corporations However, provisions passed from CARES Act expired as of March 27th 2022.

Casualty & Theft Losses

Any casualty or theft resulting from a federally declared disaster can be reported on Schedule A, but only losses exceeding 10% of the taxpayer’s AGI are deductible after subtracting $100 from the total loss. If a taxpayer deducts a casualty loss on their taxes in one year, any reimbursement received in following years must be counted as income. Taxpayers must complete Form 4864 and include the loss on Schedule A.

Adjustments to income related to employment

Now, you must fall into one of the following categories to qualify for an adjustment to income: You can be an armed forces reservist, a qualified performing artist, a state or local government official working on a fee basis, or an employee with impairment-related work expenses. Also, eligible educators may deduct up to $300 in unreimbursed school supplies and materials they have bought out of pocket.

Deductions subject to 2% of AGI - expired thru 2025

Before 2018, employees could write off job-related expenses that were more than 2% of their AGI. These tax deductions for one of the four aforementioned categories must exceed 2% of your AGI, before they will begin to help on your tax return. So if you make $100,000; your Job Expenses and Miscellaneous Deductions must exceed $2,000 before they will start to help on your tax return. There are lots of Job Expenses & Miscellaneous Deductions, but most are never used because they are so obscure people simply do not qualify for them.

Here are some of the most common Job Expenses and Miscellaneous Deductions we see.

  •  Mileage, meals, travel & lodging incurred as a necessary expense to work, but was not reimbursed by your employer.
  • Often times, this is a sales person that travels with work.
  •  Uniforms required for work, if not appropriate for wear outside of the workplace.
  •  Education courses you take to improve or maintain job skills, but not to qualify you for a new job field.
  •  Expenses incurred in looking for a new job.
  •  Dues paid to a union or other professional society.
  •  Home-office deduction for business use of your home.
  •  Investment and legal fees if they helped you produce taxable income.
  •  Tax preparation fees you paid a tax professional.

Other Miscellaneous Deductions

The last category of itemized write-offs contains items like gambling losses up to the amount of gambling winnings, partnership or subchapter S corporation losses, estate taxes on income concerning a decedent (IRD), and other specific expenses. Some deductions are done away with or changed from 2018 to 2025. For more information, please see  IRS Publication 5307 Tax Reform Basics for Individuals and Families. As always, consult with your tax advisor to be sure.

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