The easiest way to reduce your tax bill is to reduce your taxable income. But you don't have to turn down your next raise or ask your boss for a pay cut. Instead, utilize tax deductions.
You can choose to use the standard deduction amount that the IRS establishes annually for each taxpayer based on filing status. Or, if you have expenses that will produce a larger tax break, you can itemize deductions. You do so by keeping track of your expenses, meeting some income thresholds and deductibility limits and filing the long Form 1040 and accompanying Schedule A.
Schedule A generally allows you to subtract from your income the amounts you spent in a given tax year on medical care, other taxes, certain interest payments, charitable gifts, casualty losses and several miscellaneous expenses.
Schedule A is divided into seven deduction sections. Using the form as our guide, here's what you can claim.
Take a tax break
If you itemize deductions, you must file the long Form 1040 and Schedule A. But the extra hassle is worth it if it reduces your tax bill.
Medical and dental expenses
The first group of deductions is for medical expenses, but you really need to rack up some big bills for this to kick in. You can deduct only the medical and dental expenses that exceed 7.5 percent of your adjusted gross income, or AGI. With an AGI of $40,000 your medical deduction threshold is $3,000. That means if you have less than that in medical costs, they are of no tax value. And if you have $5,000 total medical expenses, you can deduct only $2,000, the amount that exceeds 7.5 percent of your income.
You might be able to reach the limit by claiming some tax-deductible medical costs that are often overlooked. Examples include mileage to the hospital, the costs of special medical equipment or home renovations for medical purposes -- even a portion of long-term care premiums. The costs of medical care for your spouse and dependents also count here, too.