So, you’re doing your own taxes. Kudos for saving money! But should you take the standard tax deduction or should you itemize? Here are general guidelines on when to take a standard deduction and why. Regardless of which option is best for you, these tips may help you keep more of your hard-earned cash.
Standard Tax Deduction vs. Itemized Tax Deduction
Standard tax deductions subtract a predetermined amount from your income. Here are the standard tax deductions for 2019:
- Single – $12,200
- Married, filing jointly – $24,400
- Married, filing separately – $12,200
- Head of household – $18,350
Itemized deductions take into account specific expenses, which can include anything from healthcare costs to charitable donations and more.
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Which Tax Deduction to Take
If the amount of your itemized deductions outweighs the amount of your standard tax deduction, you’re better off itemizing. But that can be daunting for some people, especially if this is the first time doing your taxes yourself. Plus, you have to have proof of your expenses. So if you’re an organized person who keeps all your receipts, you may be an ideal candidate for an itemized deduction. But if this kind of meticulous record keeping isn’t your cup of tea, it might not be worth the effort to try and itemize. A standard tax deduction is the easier route.
To help you get the highest tax return, let’s break down the most common tax deductions you may qualify for.
Itemized Deductions You Can Claim on Your Tax Return
There are hundreds of itemized tax deductions you may be eligible to claim. Here are the most common:
Medical Expenses
Medical costs not covered by insurance may be claimed on your tax return if they equal 10% or greater of your adjusted gross income.You may only claim the amount that exceeds 10% AGI, so if you make $100,000 and you have uninsured medical costs of $15,000, you may only deduct $5,000.
When you consider all the medical expenses not covered by most insurance, like chiropractic, acupuncture, service animals, and transportation to and from medical appointments, this tax deduction can add up quickly. There are also medical costs for which you may not have insurance, like glasses and contact lenses, dentures and dental work, and nursing home care.
Charitable Contributions
If the IRS has designated a charity you donated to as a nonprofit organization, you may count your donation as a tax deduction, up to 50% of your adjusted gross income. The catch is if your charity sent you a thank-you gift, like a coffee mug or a tote bag, you have to discount the value of the gift from your donation. So if you donated $150 to your child’s school and they gave you a tote bag valued at $15, you may only claim a tax deduction of $135 dollars.
If you donate items to charity, you may deduct the cost of the item or the materials used to make it. So if you’re quilting and donating those quilts to the homeless shelter, you may deduct the cost of fabric, batting, yarn, and other sewing supplies. If you purchase a quilt and donate it, you may deduct the purchase price of the quilt.
Mortgage Interest
Many homeowners and real estate investors don’t know that if you owe up to $750,000 on a home (up to two properties), you may be able to deduct your mortgage interest. And if you bought it prior to December 15, 2017, interest on a mortgage loan up to $1 million is tax deductible.
Property Tax
State and local property taxes up to $10,000 may be claimed as a deduction, and may include property outside the United States, as well as taxes on cars, RVs, and boats.
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Standard Deductions You Can Claim on Your Tax Return
Even if you opt to take the standard deduction on your tax return, there are a handful of other deductions you may be able to claim.
Student Loan Interest
Still paying off your college tuition? Provided you’re not listed as a dependent on anyone else’s tax return, you may deduct the interest on your student loans, up to $2,500, as long as you make less than $70,000/year. If your income is between $70,000 and $85,000, you may be eligible for a reduced deduction.
Business Expenses
You may be eligible to claim unreimbursed business expenses, including work apparel, as well as some business transportation costs, provided they exceed 2% of your adjusted gross income. While you can’t claim driving to and from work, you may be able to deduct 58 cents for every mile driven for business purposes, like deliveries and business meetings. Plus, you may deduct associated costs like gas and parking.
If you’re self-employed, you’re eligible for even more tax deductions. If you have a dedicated home office, you may be able to write-off $5/square foot, up to 300 square feet. You may also deduct education costs that “maintain or improve skills needed in your present work.” This could include tuition costs, business conferences, and books, to name a few. And you may be eligible to deduct your health insurance premiums.
Health Savings Account Contributions
If you have a health savings account, or HSA, you may deduct after-tax contributions up to $3,500 if you’re single or $7,000 for a family. This is the same as the maximum contribution for your HSA.
Teaching Expenses
School teachers who teach grades K-12 may deduct up to $250 of classroom materials and school supplies.
Moving Expenses for Military
If you’re a member of the military, you may deduct moving expenses incurred as a result of a permanent change of station.
Related: What You Need to Know About Tax Shelter Investments
Paradigm Life does not give tax or legal advice and nothing contained in the article is intended to constitute tax or legal advice. For more information on taxes and your specific situation, speak with your tax advisor.
