The first step when it comes to filing your federal tax return is going to be deciding just how you’re going to file. The first major question you’ll need to ask yourself is “Should I go with the standardized deduction, or is it more beneficial to go with the itemized deduction?” The amount of paperwork and effort you’ll need to put into filing will be hugely different! If you’re unsure which is best for you, try to find a tax professional for federal tax deductions to ensure you’re on the right track to maximum deductions.
To better understand which deduction option to take we’ll go over the two main types and what options you have for each one. When it comes to your federal tax return you can only choose one deduction, so if you go with standardized you will not be able to itemize any deductions, and vice versa. The standardized deduction is a set monetary amount you claim on your tax return with a rate that depends on which filing status you choose. If you’re single or married filing separately that amount is $6,300; married filing jointly or filing as a qualifying widow or widower is a standard deduction of $12,600 and lastly, filing as head of household entitles you to a deduction amount of $9,250. These amounts are then subtracted from your adjusted gross income (AGI). The end result being that the amount of taxable income you claim for the year will be that much less.
The itemized deduction option is a little more detailed, and an accountant like myself will be able to do the math for you to determine if it’s really in your best interest to go that route. With the itemized deductions for your federal tax return, you’ll end up going through your numerous costs for the entire tax year and deduct them from your taxable income. Of course the regulations set forth by the IRS are strict, so when you’re adding up the variables you’ll want to make sure everything is well documented. The list of expenses you can itemize is extensive, so here are a few of the most common itemized deductions:
Charitable Donations – If you’ve donated money, time or services to a qualifying charity or organization, you might have a valid deduction. Be careful, however, because not every charity is actually eligible to give you tax deductions on those donations. You can check with the IRS for a list of groups that are able to accept your donations and give you tax exempt receipts for them. Political campaigns and candidates do not fall under this deductive group, so just keep that in mind when you’re putting money in the pockets of your favorite politicians. A few other things you can deduct include donated vehicles, donated services, housewares, and even goods and supplies you used to make items for charity events. For example, if you made pastries for a bake sale of which the proceeds went to an eligible charity; the supplies you purchased to make those pastries are deductible.
Medical and Dental Expenses – There are some pretty strict caveats here, so perhaps conferring with a tax preparer if you’re unsure of the specific rules might be a good idea. All out of pocket expenses for these two are deductible, so in some cases (but not in all) insurance premiums, and the costs to diagnose or keep you healthy can be deducted. The magic number here is %10, and that number represents the minimum amount of adjusted gross income that medical bills have cost you. If they’ve exceeded that amount, you’re good to deduct those expenses.
Mortgage Interest – Most mortgage companies will issue you a form 1098 which will include all of the pertinent information you need for your taxes. What you paid in mortgage interest, mortgage insurance, and if you bought your home in that year, it will show the amount of deductible points that are eligible to you. If you don’t receive that form, you’ll need to do that math yourself, or you can bring it to us and we’ll do it for you.
Income tax You Paid Last Year – If you ended up paying state or local income taxes last year, this can be deducted, but not if the taxes you paid were on income that is exempt from federal taxation.
Self-employment Related Expenses – Entrepreneurs and small business owners know the ins and outs of this group of itemizations. In order to make your hard earned dollar go the distance, you’ll want to add up every cost big and small to maximize your tax savings. Supplies, home office, travel expenses, utilities, suits, business cards and even client meals are just a small glimpse into what can be deducted. Just remember, you’ll need to keep all documentation that proves why you needed these expenses to improve or maintain your business in the event that your tax filing is called into question at a later date. Find a tax preparer to put all your receipts in order, especially if you aren’t sure what can and can’t be deducted under IRS regulation.
There are still countless other deductions that fall under the vast umbrella that is the itemized deduction option on your federal tax return. The deductions are meant to help you come to an actual taxable income amount, so you’re not losing money operating your business or living day to day. Being meticulous and informed will gain you access to the most deductions and will get you the most savings on your tax return. Please don’t hesitate to schedule an appointment with us at TaxMedics. Let our team help you with your return and all your accounting and tax needs! Just click the link below and we’ll get you started on the right track!
