Taking the standard deduction may be easy, but it could cost you.
Individuals who spend a lot on medical care, mortgage interest, state and local taxes, charitable contributions or a variety of miscellaneous items frequently are better off itemizing. When these expenditures exceed the standard deduction, you'll save on your taxes.
Schedule ABy keeping track of these expenses and listing them on Schedule A, you could come up with a substantially larger dollar figure than the standard deduction amount.
But there are a couple of things to keep in mind when you itemize. First, the paperwork. There's that extra form, Schedule A, to contend with, and it must be filed along with the longest of the individual returns, the 1040.
ThresholdsNext, and more to the tax-saving point, not every dollar you spend can be subtracted from your income. Tax law sets thresholds a filer must meet before some deductions can be claimed.
In the medical category, only expenses that exceed 7.5 percent of your adjusted gross income can be deducted. If you didn't spend at least that much, then none of your costs are deductible.
Limits and restrictionsYou have to reach a 2-percent-of-income threshold before you can use miscellaneous deductions such as unreimbursed job expenses and investment and tax preparation costs. There also are restrictions on how much in casualty losses you can deduct, as well as limits on the deductibility of very large charitable contribution amounts.
And once you do total your itemized deductions, the actual amount you can claim may be reduced if you earn a lot.
Married file alikeMarried couples that file separately also must work together when it comes to deciding which deductions route to take. Even though each partner will fill out a separate return, if one spouse decides to itemize, the other must do so, too.
Some must itemizeFinally, some taxpayers must itemize even if the standard deduction would be more favorable. They include nonresident aliens, dual-status aliens and individuals who file returns for periods of less than 12 months.
- Schedule A has to be filed along with the 1040
- Deductions must be documented
- Medical expenses must exceed 7.5 percent of your AGI to be deductible
- Miscellaneous deductions, such as unreimbursed job expenses and investment and tax-preparation costs, must amount to 2 percent of AGI
- There are limits on deductions for casualty losses, some charitable contributions, and more