What Are Itemized Deductions?
Completing your own taxes might be cheap, considering all the free tax filing options out there, but it can also be overwhelming. One question that can help you decide whether to go the DIY route or not is if you should itemize deductions. It's especially worth asking now, as the Tax Cuts and Jobs Act of 2017 brought about a few changes.
Check out our list of itemized deductions, plus info on how to prepare if you choose to do your taxes that way.
What Are Itemized Deductions?
Itemized deductions are expenses related to eligible products, services, or contributions that you can claim in order to lower your tax bill.
The Standard Deduction vs. Itemized Deductions
The standard deduction almost doubled for 2018 and increased again for 2019, but that doesn't mean it's the right route for everyone. If you're not sure whether to go with it or take the time to itemize deductions, you can look to IRS Topic No. 501 for help. As a general rule, "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," according to the IRS.
7 Types of Itemized Tax Deductions
Due to the Tax Cuts and Jobs Act, taxes have changed for both singles and families alike. Publication 5307 provides insight into what's different now. However, as a general rule, the following are the types of itemized deductions that are most common for taxpayers to claim.
| Type of Deduction | Notes |
|---|---|
| Medical and dental expenses |
You can deduct if they're more than 7.5% of your AGI; See Publication 502 for more guidance |
| State and local taxes |
Limited to $10,000 combined for state and local income, sales, and property taxes; Limited to $5,000 for married taxpayers filing separately |
| Interest paid | Applies to investment interest (limited to your net investment income) and qualified mortgage interest, which includes interest and points you pay on your main or second home |
| Charitable contributions |
Generally, up to 60% of of your AGI can be deducted, although in select cases those limits are 20% or 30%; See Publication 526 for more guidance |
| Casualty and theft losses |
The loss must be greater than $100 per casualty and 10% of your AGI; See Form 4684 for more guidance |
| Job expenses |
Specific individuals can claim unreimbursed employee expenses; See Publication 529 for more guidance and to see if you qualify |
| Miscellaneous deductions | See Schedule A instructions for more guidance |
If you decide to proceed, you'll need to include a completed Form 1040, Schedule A with your tax return. The IRS provides a detailed guide with instructions on how to populate Schedule A.
Most Workers Can No Longer Claim Job Expenses
Taxpayers used to be able to claim unreimbursed job expenses, as long as they exceeded 2% of their adjusted gross income, or AGI. That's changed now. In order to claim these deductions, you must be in one of the following groups:
- Armed Forces reservists
- Qualified performing artists
- Fee-basis state or local government officials
- Employees with impairment-related work expenses
You can also qualify if you have certain "qualified educator expenses."
How to Prepare to File Your Tax Return
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 give your tax preparer 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.
What If You Get Audited?
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.
SEE ALSO: Here's Everything You Need to Know About Tax Season
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.
Does High Income Affect Itemized Deductions?
In previous years, taxpayer categories with an AGI above certain levels were limited in how much they could claim in itemized deductions. However, the Tax Cuts and Jobs Act has suspended those limits for 2018 to 2025.
Readers, will you be itemizing deductions this year? If so, how will you prepare? Let us know in the comments below.
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