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Home » Taxes

Thinking of Itemizing your Tax Deductions? Here’s a Teaser

Last updated by on 13 Comments

Itemizing your Taxes Made Easier

If you’re like me, you’re probably still waiting around for all your income statements to trickle in from banks, discount brokers, your employer, and anyone else whom you might have some sort of financial interest with.

The part that is more in your control is the organization of your deductions. If you’re not sure whether or not itemizing your taxes is right for you, you may want to visit IRS Form 1040 (Schedules A&B). What follows will be a teaser on what you could potentially itemize and how to organize your tax deductible expenses throughout the year.

Passing on the Standard Tax Deduction


itemizing tax deductionsI’m one of those 35-40% of Americans who doesn’t take the standard deduction, and it has paid off the last 3 years. I get disturbingly excited about being able to itemize my taxes. However, in doing so, I’m quickly finding that with each passing year, preparing for my tax return keeps getting progressively difficult.

I’ve always used tax software, such as Turbotax and H&R Block, however, knowing all the ins and outs of what deductions I can claim, what losses I can write off, and the ins/outs of self-employment deductions has become increasingly difficult. Preparation is key.

A List of Tax Deductions by Category

Itemizing your taxes can be fairly straightforward – but much more so if you prepare year round. I have a simple way of dealing with tax documents in lieu of itemizing that has worked for me over the years. I’d recommend grabbing some manila folders and labeling them. Here’s how I group tax related paperwork for deductions:

1. Investment Loss Deductions

This includes losses from mutual funds, stocks, and other investments. If you get electronic statements from your online brokers, you may actually need to go into your account online and print off your 1099-B tax forms.

2. Charitable Donation Deductions

If you have record of a gift that you gave to a 501(c)(3), hold onto them. Also, you may be able to deduct mileage and other expenses from volunteering your time and efforts for a non-profit. Here’s complete documentation on IRS deductible charitable donations and my guide on donation receipts (I used to work at a non-profit).

3. Real Estate Expense Deductions

If you own a home, you’ll need a copy of your tax bill or a statement from your escrow company on how much in property taxes you paid over the year. Those with mortgages will need a 1098 from their mortgage provider. Those lucky enough to claim the first-time homebuyer credit will need to attach IRS Form 5405. Also, don’t forget home energy improvement credits.

4. Education Expense Deductions

Education deductions include interest paid on student loans (IRS Form 1098-E), college expenses (books, travel, etc.).

5. Family Expense Deductions

Have a family? You probably need some deductions these days. Deductible expenses include child and dependent care expenses, adoption expenses, child tax credits, and earned income credits.

6. Personal Property & Vehicle Deductions

In this category you can lump in any vehicle registration fees, personal property taxes paid, and credits from qualified electric vehicles.

7. Medical & Dental Expense Deductions

You can deduct medical and dental expense in your taxes if they exceed 7.5% of your gross AGI. These expenses can include medical bills, prescriptions costs, medical equipment costs, insurance premiums, and miles driven for medical purpose. Payments to HSA’s are also tax deductible if you itemize, regardless if you hit the 7.5% on other medical expenses.

8. Retirement & Investment Expense Deductions

Getting money back for investing is great! Traditional & SEP IRA contributions are tax deductible. Your 401(k) and 403(b) contributions should already be factored in through payroll and your W2. Also, if you’re under certain income thresholds, you may be able to claim the Retirement Savings Contribution Credit.

9. Employment Expense Deductions

Eligible employment expenses includes anything work-related that comes out of your pocket, basically – gas mileage, food, travel, clothing, software, hardware, etc. Self-employment expenses get a little more complex, so I won’t cover it in this post, but stay tuned for more down the road in this area. Also included is any expenses related to applying and interviewing for a job. Check out IRS Publication 529 for more.

Itemizing your tax deductions isn’t the easiest or most enjoyable thing in the world to do, but it can potentially pay huge dividends for you.

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Reader Tax Deduction Discussion:

  • Are you itemizing your taxes this year? Take the poll!
  • Would you add any major buckets of deductions to this list?
  • How long have you been itemizing?
  • Do you get excited about itemizing your taxes?

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13 Comments »
  • holykemp says:

    Does itemizing make sense if you don’t own a home or didn’t make a major purchase in that tax year? I feel like it’s extremely difficult to get over the $5,700 standard deduction amount (and therefore, make it worth it to itemize) when I can’t deduct property tax, mortgage interest or sales tax on a major purchase. Thoughts?

    • G.E. Miller says:

      @ Holykemp – it’s hard to answer that question b/c everyone has a slightly different situation. However, it’s much less likely that you’ll be able to deduct over the standard amount if you don’t pay mortgage interest and property tax. It’s still worth looking into, in my opinion, if you don’t own a home.

  • Robert says:

    I haven’t itemized my deductions, but it certainly seems the way to go for homeowners and others who can deduct quite a bit from their return.

  • Jeff Walden says:

    Even if you don’t pay mortgage interest or property tax, itemizing is much more likely to make sense if you tithe. 10% of your income can be a very large chunk of change, especially if that’s a pre-tax percentage…

  • Jeff Walden says:

    If memory serves (this was *just discussed* in comments here, I think on the HAPPY post, and I looked it up later and verified — again, if memory serves) the medical expense deduction is only for the extent that medical expenses exceed 7.5%, not 0 for =7.5%.

  • Jeff Walden says:

    Gah, angle brackets ate that last bit up — should have been:

    not 0 for less than 7.5% and something much more than 0 if greater/equal to 7.5% (in other words, if you spend x% on medical expenses where x is more than 7.5, you can deduct (x – 7.5)% in medical expenses).

  • holykemp says:

    UPDATE: Thought I’d share an update and answer my own question. I did my taxes over the weekend and it did make sense for me to itemize, even though I don’t own a home and didn’t make a large purchase in 2009. BUT I do live in a state with a hefty 10% income tax. The tax paid for 2009 was higher than the standard deduction, so I’m itemizing to deduct the state income tax. I think that may have been what Jeff @ 5:51am was referring to?

  • Jeff Walden says:

    No, tithing as giving money to your church; the historical meaning of tithing as an amount is at least 10% of your income, although there’s some disagreement over whether that’s pre-tax or post-tax. If you think it should be pre-tax, then making $57000+ in 2009 (not a particularly large salary in skilled fields, especially if you live somewhere where cost of living makes salaries higher) would alone make itemization worthwhile. The salary would have to be higher if you think the tithe is post-tax, but again depending on your field the necessary salary is still not unusually large.

  • yemek tarifleri says:

    Definitely a good thing. Donate now and get your money back within a few months when you file your tax return. I don’t itemize but I still donated to the Haiti relief.

  • MIchele Campbrll says:

    Hi,

    My husband and I both work on the road for all of our jobs. My husband is a Boilermaker and I do Processing, although we are not self employed and do work for companys, we do not work from our home ever as it is 75 miles each way from the nearest nuclear plant and that bis where the majority of our work is. My husband is Union and pays Union dues, I am not. Is it better for us to itemize or is there a standard deduction for every day we are away from home, obviously, we stay out of town or out of state with when working, sometimes not seeing our home for months at a time. If itemizing is the way to go, how much of our actual expenses are we allowed to deduct? Thank you for any and all assistance/answers to this.

    P.S. We usually pay a CPA to do this for us, to the cost of $650.00, so I thought this year I would try it myself!

    Thanks again, Michele

  • Ryan says:

    Since we bought a home this year I’m looking into itemizing for the first time. I have a few questions that I’m hoping someone may have insight on!

    1) I know you can deduct points paid to lower the mortgage interest rate, but do those show up on a 1098 or any other form from the bank? Or do I just need to keep a copy of our lending agreement handy in case the IRS comes calling?

    2) You CANNOT deduct regular commuting expenses (gas, car depreciation), right?

    3) I live in a state with sales tax, but no income tax. Thoughts on adding up actual expenses vs. using the tax tables? If the tax tables are typically close I’d rather not take the time to add up all of my individual expenses.

    Thanks!

    -Ryan

  • Ryan says:

    Just answered question #1 for myself – my bank already has the 1098 statement ready, and “points paid” is a box on there.

  • Amanda says:

    When itemizing eligible expenses, would bank statements be enough documentation or is an actual receipt required?

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