Ok, I'm not a poet. But someone asked me about itemizing deductions this week and I couldn't resist the title. So, should you itemize your deductions on your taxes? As always, the easy answer is "it depends."
For couples who file jointly, are under 65 and are not blind, the standard deduction is $11,400. That means you have to have deductions higher than $11,400 to make itemizing worthwhile. What can be itemized? Mortgage interest, state and local taxes (income tax or sales tax - but not both), real estate taxes, taxes on a new motor vehicle and gifts to charity are fully deductible. If these total up (or come close to) your standard deduction, then itemization makes good sense. In SC, taxes aren't high enough to force the issue alone, so mortgage interest and charitable giving usually are the factors that answer the question.
There are other deductions too. Medical and dental expenses that exceed 7.5% of your adjusted gross income is deductible. That sounds hard, but start by taking a look at your income and multiply by .075. If your medical expenses are more than that, proceed, if not, just let them go.
Years ago, someone told me you could deduct shoe polish. The logic was you polished your shoes for work, so it was a job expense. While I would question shoe polish under any circumstance, job expenses have to exceed 2% of your adjusted gross income. Most people that have a job that requires polished shoes have a high income and shoe polish won't come up to that much money.
By all means you should do the math every year to see if itemization helps you. Some people worry about being audited. My advise follows Will Rogers' saying "I'm happy to be an American and happy to pay my taxes. But I could be a lot happier for a lot less money." In other words, don't worry about being audited, do what's right, document your numbers and take every deduction that is legally allowed.
So what do you think? Will you itemize this year?
3 comments:
What about education expenses? I thought those helped with deductions too.
We always let TurboTax decide if we should itemize. The last several years the answer has been Yes.
Ashley "education expenses" can either be a deduction or a credit depending on which form you use. The deductions I covered were the ones on Schedule A. This is the schedule used to itemize and you can either use this form or take the standard deduction.
Education expenses can be claimed regardless whether you itemize or not or forms 8917 or 8863.
This confusion is a good reason to use something like TurboTax. You don't have to decide which of the forms (or which of the three parts of 8863) to use, Turbotax does the work for you.
But you would still be well served to read the forms and see what other options you have.
There can be 1 other time you might not want to itemize...it you itemize certain things in one year, you have to claim them on certain tax categories the following year. If you are going through a very GOOD year and are expecting the following year to be very BAD, and your itemized amount is only a couple hundred from the standard deduction, you might want to consider the standard deduction anyway. The reasoning is that the following year, you get certain tax breaks from taking the standard deduction. If your income is down, but your deductions are up, you'll benefit in year 2. It's a complicated formula, but for those changing tax status (single to married, for example), it could make a HUGE difference. The flip side, of course, is that anything you don't claim now, you could lose if they change the tax law to remove that itemized deduction (like mortgage interest -- and don't laugh, I've seen a plan where someone proposed exactly that....).
Ultimately, when it doubt, seek out a tax counselor or tax professional.
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