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Personal Finances

What Additional Funds Can I Save If I Choose To Itemize My Taxes?

What Additional Funds Can I Save If I Choose To Itemize My Taxes?

What Additional Funds Can I Save If I Choose To Itemize My Taxes?

According to the Internal Revenue Service, about 7 out of 10 people opt for the standard deduction when filing their returns. The standard deduction is available to all Americans and no additional paperwork is required. If you opt in to itemize your return, however, a few expenses can qualify you for big reductions.

In this blog, you will find a few common examples where itemizing your returns may unlock additional savings:

If you pay a high local tax rate:

Lisa Greene-Lewis, the tax expert for Turbo tax, says that local and State taxes can be deducted on your federal return. That means if you earn a paycheck in a state like Oregon, Minnesota, and California, where income tax range is north of 9%, in this situation you may itemize your local taxes alone.

If you own a home:

Homeowners can lower their taxable income by the mortgage interest amount they pay. For instance, a 40 year fixed mortgage of $400,000 demands about $14,000 in interest payments for the first year of the mortgage loan.

If you make a big contribution:

When filing returns, charitable donations are tax deductible, and to claim your deductions, you must itemize your deductions.

If you have large medical bills:

Cap Willey, MD at accounting provider CBIZ MHM says that there is a high threshold to qualify for medical deductions. For the tax year of 2016, a taxpayer who is under 65 can only deduct his out-of-pocket expenses if the amount exceeds 10% of their adjusted gross income. Older Americans can deduct their medical expenses above 7.5% of their adjusted gross income.

Don’t forget ‘above the line’ deductions

The “above-the-line” deductions allow the taxpayer to deduct from his or her gross income to reach the “Adjusted Gross Income.” These deductions are found in taxpayer main form 1040, and while some require additional forms, as compared to conventional itemized deductions, they are easier to access.

Examples of most common above-the-line items include:

Moving expenses:

If a taxpayer moved more than 50 miles for a new job and his or her employer didn’t pay reimbursement, they can deduct those moving expenses.

Expenses for educators:

A teacher who spent her own money on supplies for her classes, she will get up to $250 in tax breaks.

Student loan interest:

If a student pays interest on student loan as per form 1098-E, you can claim the above-the-line deduction. Greene-Lewis points out that if you are still confused about itemization, many tax programs can help you to clear your doubts about maximizing your deductions.

For the tax year 2016, the standard deductions are as follows:

  • Married filing jointly: $12,600
  • Married filing separately: $6,300
  • Single: $6,300
  • Head of household: $9,300
  • Taxpayers above age 65 or legally blind: $1,250 if married and $1,550 if single.

At United Counselors, we educate our clients on how to qualify for tax credit or breaks. Should you have any questions related to your tax returns, please visit our website www.unitedcounselors.org.

Posted in Personal Finances