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The New Tax Filer's Guide to Itemized Deductions

Filing federal income taxes can be stressful. Making sure you plug in all the right numbers and snag every tax break you qualify for can make your head spin. If you’re relatively new to tax filing, you may not know the difference between taking the standard deduction and itemizing your deductions. Itemizing isn’t right for everyone, so before you file, keep reading to find out whether it makes sense for you.

What Does Itemizing Deductions Mean?

To understand what itemizing is, it helps to know how it’s different from claiming the standard deduction. The standard deduction is a predetermined amount of money that everyone is allowed to exclude from his or her taxable income each year. The size of your standard deduction depends on your filing status and disability status.

The standard deduction assumes that you don’t have deductible expenses that exceed that amount for the year. But if the sum of your deductible expenses is higher than the standard deduction, you could itemize instead. When you itemize, you’re essentially listing your deductible expenses individually.

Which Expenses Can You Itemize?

You have to report itemized deductions on the Schedule A tax form. But not all expenses are deductible. Here’s a quick rundown of some items you can write off by itemizing:

  • Medical and dental expenses
  • Deductible taxes, including sales taxes and property taxes
  • Mortgage loan points
  • Mortgage loan interest
  • Investment interest
  • Charitable donations
  • Tax preparation fees
  • Unreimbursed employee expenses
  • Business expenses, including some for travel
  • Work-related education expenses
  • Casualty, disaster and theft losses

That’s a fairly exhaustive list. But it’s important to remember to stay within the IRS guidelines when trying to itemize. Attempting to write off something that’s not considered a deductible expense could get you in trouble. The following expenses aren’t deductible:

  • Adoption expenses (although you may qualify for the Adoption Tax Credit)
  • Hobby losses
  • Home repairs
  • Homeowners insurance
  • Legal fees
  • Gift taxes
  • Commuting expenses
  • Rent payments
  • Personal living expenses
  • Tax penalty payments
  • Business travel expenses paid for someone else

One thing you need to keep in mind is that itemized deductions generally have limitations. For example, if you’re deducting charitable donations, the amount you can deduct maxes out at 50% of your adjusted gross income. If you’re hoping to deduct medical or dental expenses, you can only do so if they amount to more than 7.5% of your adjusted gross income in 2017 or 2018.

Expenses You Can Deduct Without Itemizing

The New Tax Filer's Guide to Itemized Deductions

There are some expenses that you can deduct even if you choose the standard deduction over itemizing. Things like educator expenses if you’re a teacher, student loan interest and contributions to a traditional IRA or health savings account fall into this category.

Again, each of these deductions has its own guidelines that you should be aware of. The amount you can deduct for traditional IRA contributions, for instance, depends on your filing status, income level and whether you’re covered by an employer’s retirement plan at work. The deduction for student loan interest maxes out at $2,500 for 2017.

When Does It Make Sense to Itemize?

Generally, itemizing may be the right move if your deductible expenses exceed the standard deduction. The best way to decide whether itemizing is the way to go is to crunch some numbers. Comparing how much you stand to owe if you took the standard deduction versus itemizing can point you in the right direction.

The Bottom Line

The New Tax Filer's Guide to Itemized Deductions

Itemizing deductions is a way to minimize your tax payments. If the value of your itemizable deductions exceeds the standard deduction, it is generally a good idea to itemize. At the same time, you should always consider your individual situation. If itemizing will save you $100 more than the standard deduction, it might not be worth it for you to go through the work of itemizing. If you do itemize, just make sure to keep copies of all your receipts for at least seven years (in case of an audit).

Tips for Itemizing Deductions

  • Deductions are certainly a complicated part of the U.S. tax code.. There are many possible deductions that you may be able to claim depending on things like your filing status, your profession and your lifestyle. If you’re unsure which deductions you qualify for, consider working with a tax accountant. You should also consider working with a financial advisor. A financial advisor can help you plan your finances throughout the year so that when tax season rolls around, you know exactly what to expect.
  • The decision to itemize will depend on the value of your standard deduction. The tax President Trump signed last year will nearly double 2018 standard deductions over their 2017 values. That will mean itemizing is no longer the best option for some people. Here’s a straightforward guide to who should itemize under the new tax plan.
  • When you filing your taxes, using the right online service could ensure you don’t miss deductions that you qualify for. One tax filing service that can help you maximize deductions is TurboTax. TurboTax has a user-friendly design, educational content and software to help you minimize your tax bite and maximize your refund.

Photo credit: ©iStock.com/Antonio_Diaz, ©iStock.com/Dean Mitchell, ©iStock.com/fstop123

Rebecca Lake Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She's worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.
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