Itemizing has the potential to make a big difference on your income taxes. Itemizing refers to listing certain tax deductions as their own line items, rather than opting for a standard deduction on your tax return. There are scenarios where this extra step can be worth the pain. And though you may have already filed this year, here are the three things you need to know about how tax deductions can impact your tax refund next year.
Standard Isn’t for Everyone
Taxes can be confusing and time consuming, which is why standard deduction allowances were created. The amounts can change from year to year and be adjusted for inflation, but standard deductions are a set amount allowed by the IRS, such as the $6,300 deduction for single people (or married people filing separately) and the $12,600 deduction for married couples. However, there are times when you could save more on your taxes if you itemize your deductions because the amount will exceed the standard allowance.
Things That Count
There are plenty of things you can deduct that you may not even realize. For example, did you know you could deduct the interest from a student loan — even if your parents paid the loan back? You can also deduct costs associated with job hunting or moving for a new job. And if you use child care services, you can get credits (rather than a deduction) on your taxes. (Learn more here.) Speaking of credits, you can also get credits on your return for certain energy-saving upgrades you’ve done to your home.
Other expenses that can be itemized include mortgage interest payments, certain charitable donations (church tithing, for example), property/state/local income taxes, and some medical expenses. You can also itemize for expenses that fall into the miscellaneous category. These expenses include things like unreimbursed employee expenses and the fee to prepare your tax return. Uninsured losses can be a deduction too.
Should You Itemize?
Deductions are designed to lower your taxes, but whether you choose to itemize or take the standard allowance comes down to the math. If your deductions are greater than $6,300 (for single or married but filing separately) or $12,600 (married couples), you should itemize and take advantage of the savings. The IRS provides all of the necessary forms for your tax return preparation. If you have questions, it’s best to consult a tax professional.