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Should you itemize deductions or take the standard deduction? You may be asking yourself this question if you haven't filed your taxes yet — and for good reason! If you make the right choice, you could owe less to the IRS or get a little more money in your tax refund.
Read on to learn about the different kinds of itemized deductions, how to prepare for an itemized return, and the limitations that apply to high-income earners.
In a nutshell, itemized deductions are expenses that offset the amount of your income can be considered taxable.
If you're torn between itemizing or taking the standard deduction, IRS Tax Topic No. 501 provides detailed guidance to help you out. It states that "you should itemize deductions if your allowable itemized deductions are greater than your standard deduction, or if you must itemize deductions because you can't use the standard deduction."
Here are seven types of itemized deductions you may qualify for:
Medical and dental expenses: You can deduct unreimbursed, qualifying medical and dental expenses that exceed 7.5% of your adjusted gross income (AGI) for 2017. See Publication 502 for more information.
Taxes paid: You can deduct state and local income or general sales taxes, along with personal property taxes. Real estate taxes are also deductible if the property is not used for business. In addition, you can deduct income tax payments remitted to both U.S. territories and foreign countries. These amounts should be included on the line that reads "Other taxes."
SEE ALSO: 4 Tax Deductions You Had No Idea Existed
Interest paid: Home mortgage interest, points, insurance premiums, and investment interest payments can be taken as itemized deductions.
Charitable contributions: Monetary gifts and the value of property donated to charity can be taken as itemized deductions. You can also deduct expenses incurred to do volunteer work for qualified charities. See Publication 526 for more information.
Casualty and theft losses: You can calculate the deductible amount for casualty and theft losses by using Form 4684.
Job expenses: You can deduct unreimbursed employee expenses and tax preparation fees that are greater than 2% of your AGI.
Other miscellaneous deductions: See the Schedule A instructions for more guidance.
If you're planning to itemize, you'll need lots of documentation to substantiate your deductions. Plus, if you're using a tax preparer, they'll need an ample amount of time to calculate and input those figures into Schedule A.
For this reason, you should follow these tax-prep tips:
Plan ahead. Meet with your tax preparer well in advance to discuss your deductions and retrieve a list of the documents they'll need.
Get organized. Don't show up at your tax preparer's office with a pile of papers or receipts (if you deduct sales tax) and expect them to sort everything. Instead, sort your documents by category and tuck them away in a safe place until your appointment. Integrate this process into your life now to save a ton of time next year, or if you're audited.
Don't wait until the last minute to file. The closer the tax filing deadline gets, the more overwhelmed your tax preparer may be. As a result, they could be more likely to make small errors or overlook deductions.
There's no reason to avoid taking deductions you qualify for out of fear of being audited. Still, if you're a high-income earner or itemize more than the average person, you shouldn't be surprised if you catch the attention of the IRS.
Just remember to keep adequate documentation on hand to successfully get through an audit. As we mentioned above, keeping your documents organized will save time in this situation.
If you're a high-income earner, the amount you can itemize may be limited. According to Tax Topic No. 501, your itemized deductions may be reduced if your AGI is greater than the following (divided by filing status):
Readers, do you itemize deductions? If so, how do you prepare for filing your taxes? Please share your tips in the comments below.