One of the important things to remember when you file your taxes each year is that there is a standard deduction and there are itemized deductions.
The standard deduction amount increases slightly every year and varies by the filing status of the taxpayer. The standard deduction will vary for single taxpayers, for married taxpayers, for taxpayers 65 years of age or older, and so forth. Not every taxpayer can use the standard deduction, and sometimes the standard deduction is better than itemized deductions.
Talk to your tax pro about which deduction you can use… standard or itemized.
If you use itemized deductions it’s important that you get your records together. Itemized deductions go on Schedule A.
There are all kinds of itemized deductions, and the better organized you are, the easier it will be to track your expenses and take your deductions. I like to use the simple envelope system to keep track of my deductible expenses. It is simple, it’s one envelope for each category.
Category #1 is state and local income taxes and sales taxes.
Category #2 is real estate and personal property taxes.
Category #3 is interest on your home mortgage.
Category #4 is any insurance you pay on a home mortgage.
Category #5 is losses from a federally declared disaster such as a hurricane or tornado.
Category #6 gifts to a charity and don’t forget the mileage to drive to the charity.
Category #7 is unreimbursed medical and dental expenses.
Now there are limitations on some of these deductions. For example, medical and dental expenses — and these include mileage for driving to doctors and to pharmacies — must exceed 7.5% of your adjusted gross income. Your tax pro can explain this to you — or you can find the instructions in your tax booklet that the IRS sends you.
The deduction for state and local taxes may also be limited.
If you do your taxes yourself and you use a software program, most of these programs do a very good job of reminding you what is deductible and how you can enter these expenses. A tax professional will also guide you.
In 2021 many of us worked from home, so you may want to claim home office deductions, as well as expenses for office supplies that you bought and used at home. Remember there are job search expenses even if you didn’t find another job.
I urge you to read the instructions that the IRS sends you, pay attention to the questions that your income tax computer software asks you, and pay attention to what your tax professional says to you.
Small deductions can add up to significant money.
And remember, if you have a tax problem or issue, call now for a free consultation. And get those envelopes ready and start sorting out your tax-deductible expenses. It might be a good idea now to start the envelope system for 2022 expenses.
Wrote by Alan Mendelson. Follow us for more of my tax tips.
Disclaimer: Alan Mendelson is a well-known TV consumer news reporter who reports on tax issues. You should seek professional advice if you have tax questions or issues.