Itemizing your tax return sometimes worth the work
Which is right for you and your family: Taking the standard deduction or itemizing your return this year?
About 70% opt for the standard deduction when they file their tax returns, according to the IRS. For tax year 2016, that means electing for a fixed tax break of $12,600 if they are married and filing jointly or $6,300 if filing single.
A big advantage of the standard deduction is that it’s available to all Americans with no extra paperwork required. However, a few expenses can qualify you for a bigger reduction in your tax burden if you simply take the time to itemize them and file the proper forms.
Here are a few common examples where itemizing may unlock additional savings:
If you pay a high local tax rate: State and local taxes can be deducted on your federal return, says Lisa Greene-Lewis, a CPA and tax expert for TurboTax. That means if you earn a decent paycheck in a state such as California, Oregon or Minnesota, where state income tax rates range north of 9%, your local taxes alone may be worth itemizing.
If you own a home: Homeownership brings with it many potential deductions, chief among them being the mortgage interest deduction, which allows homeowners to lower their taxable income by what they paid in loan interest. For instance, at current rates, a 30-year fixed mortgage of $300,000 demands about $12,000 in interest payments across the first year of the loan.
If you make a big contribution: Since charitable donations are tax-deductible, a big gift can make itemizing worth your while. Greene-Lewis points out that you must have any item valued at more than $5,000 appraised to qualify for the deduction, but the paperwork is worth the effort.
If you have big medical bills: There is a threshold to cross for medical deductions, says Cap Willey, managing director at accounting provider CBIZ MHM.
For 2016, taxpayers younger than age 65 can only deduct any out-of-pocket medical expenses that exceed 10% of their adjusted gross income, and older Americans can only deduct expenses above 7.5% of their adjusted gross income.
While technically not itemizing, there are a group of so-called “above-the-line” deductions that may allow you added tax breaks.
These deductions are found on your main Form 1040 in the “Adjusted Gross Income” section, and while some require additional forms, they are all much easier to access than itemized deductions.
A few of the most common above-the-line items include:
Expenses for educators: If you’re a teacher who spent your own money on supplies for your classes, you can get up to $250 in tax breaks.
Moving expenses: If you moved more than 50 miles for a new job and weren’t reimbursed by your employer, you can deduct those moving expenses.
Student loan interest: Find the amount of interest paid on your student loans on form 1098-E, and you can get an abovethe-line deduction.
If you’re still not sure whether to itemize, Greene-Lewis notes that many tax software programs can offer helpful prompts and questions to catch deductions.