A person’s taxable income can be reduced by claiming itemized deductions. These are expenses that can be claimed instead of the standard deduction. They include expenses such as medical bills, home improvements, and charitable contributions. These expenses can reduce the amount of money that must be paid to the IRS. A person can claim up to $5,000 worth of itemized deductions per year.
An itemized deduction is one way to lower the amount of tax you owe, but there are limits to this method of tax planning. In addition, itemizing deductions can be time-consuming, so it’s best to work with a tax expert or use tax software. You can also use TurboTax to do your taxes.
There are several states that have capped the amount of itemized deductions allowed. Some have reduced the amount by eliminating them altogether, while others have increased their limit. Several states have also limited the amount of itemized deductions that high-income taxpayers can claim. In addition, states can adopt progressive phase-down rules to reduce the amount of tax payers eligible for itemized deductions. There are six states that have done this so far, with Maine being the only state that has fully phased out itemized deductions.
To itemize deductions, a taxpayer must file a Schedule A tax form with the tax return. This form is available on the IRS website. A taxpayer should keep records of any qualifying expenses, including mortgage interest and property taxes. These may be deductible if the total amount exceeds 7.5% of the taxpayer’s adjusted gross income.
For the first two years of itemized deductions, a taxpayer should get a statement from a qualified physician. Every third year after that, a taxpayer needs to resubmit the statement. Qualifying expenses may include medical expenses, food, and clothing. Also, expenses for transportation for medical reasons must be included in an itemized schedule. The deduction cannot be claimed for rent or expenses that are not directly related to the care of a family member.
Qualified mortgage interest and real estate property taxes are also itemized deductions. However, there is a limit to how much a taxpayer can claim. For instance, if a spouse is married filing separately, a spouse can claim up to $20,000 in home mortgage interest and real estate taxes. If the homeowner has a $1.1 million mortgage/debt, the deduction is limited to $1.1 million of mortgage/debt interest.
Another way to reduce taxes is to make charitable contributions. These are generally eligible for itemized deductions under Section 170 of the Code. The federal contribution limit is currently 100% of AGI, while North Carolina’s contribution limit is 60% of AGI. A person may also itemize medical and dental expenses that are allowed under section 213 of the Code.
The standard deduction doubled in value a few years ago, but the percentage of itemizers who claimed charitable contributions declined sharply between 2005 and 2017. Since then, the standard deduction has increased to $600, which is nearly double of what it was just a few years ago. In addition, donations of used vehicles and clothing are no longer deductible.