Since you can decide every year whether you want to take the standard deduction or itemize your deductions, careful tax planning can help you maximize your deductions in years you itemize.
Key Takeaways
- Many everyday expenses can be itemized as deductions on your income tax return.
- Categorize your expenses into IRS-approved deduction categories such as medical and dental expenses, deductible taxes, home mortgage points, etc.
- Bunch your expenses into one tax year to maximize the value of your deductions.
- If you've been holding off on certain deductible purchases, consider making them during a year in which you itemize.
Maximizing your deductions
Many of your everyday expenses can be itemized as deductions on your income tax return, saving you lots of money at tax time. However, unless you have a large amount of qualifying expenses, you might be better off taking the standard deduction, as most taxpayers do. Since you can decide every year whether you want to take the standard deduction or not, careful tax planning can help you maximize your deductions in years you itemize.
Categorize deductions
Only certain expenses can be classified as itemized deductions. To maximize your deductions, you'll have to have expenses in the following IRS-approved categories:
- Medical and dental expenses
- Deductible taxes
- Home mortgage points
- Interest expenses
- Charitable contributions
- Casualty, disaster and theft losses
- For tax years before 2018 - Certain miscellaneous expenses and non-reimbursed employee business expenses including:
- Investment expenses
- Union dues
- Business use of home
- Business use of car
- Business travel expenses
- Business entertainment expenses
Your expenses in certain categories must cross various thresholds in order to itemize. For example, your medical and dental expenses are only deductible to the extent they exceed 7.5% of your adjusted gross income (AGI).
Starting in 2018, miscellaneous and non-reimbursed employee expenses are no longer deductible for federal taxes. For tax years before 2018 these expenses must exceed 2% of your AGI before they become deductible. Some states have not fully aligned with the recent tax law changes and allow itemized deductions for these types of non-reimbursed employee expenses.
TurboTax Tip:
Keep a checklist of allowable deductions to avoid overlooking expenses that can be deducted.
Bunch deductions
Bunching your deductions can maximize the value you get out of them, especially in categories where you have to cross a minimum threshold. For example,
- If you have medical expenses every year that equal 7% of your AGI, you'll never get to itemize those deductions.
- But, if you can push any of those regular expenses into the following year, you may have more than 10% of your AGI in expenses in one year, instead of 7%.
- In this scenario, a portion of those expenses may become deductible.
Spend when itemizing
If you intend to itemize in any given year, it makes sense to generate as much spending as possible in deductible categories to get the maximum effect. While spending just to generate a deduction isn't advisable, if you've been holding off on certain purchases, it makes more sense to make those purchases during a year in which you itemize.
For example, if you have been delaying certain medical treatments, you'll get more mileage out of your deductions if you spend that money in a year when you're already over the medical deduction threshold.
Follow a checklist
If you take certain deductions every year, you might get in the habit of overlooking other available options. Keeping a checklist of available deductions can help you unearth both one-time and everyday expenses that you can actually deduct. For example,
- If you have gambling losses, you can deduct those up to the extent of your gambling winnings.
- You might regularly take deductions for charitable contributions, but you may also be able to deduct your mileage and expenses for travel to and from a charity.
With TurboTax Live Full Service, a local expert matched to your unique situation will do your taxes for you start to finish. Or, get unlimited help and advice from tax experts while you do your taxes with TurboTax Live Assisted.
And if you want to file your own taxes, you can still feel confident you'll do them right with TurboTax as we guide you step by step. No matter which way you file, we guarantee 100% accuracy and your maximum refund.
FAQs
Categorize your expenses into IRS-approved deduction categories such as medical and dental expenses, deductible taxes, home mortgage points, etc. Bunch your expenses into one tax year to maximize the value of your deductions.
How do I max out itemized deductions? ›
Categorize your expenses into IRS-approved deduction categories such as medical and dental expenses, deductible taxes, home mortgage points, etc. Bunch your expenses into one tax year to maximize the value of your deductions.
What is the 2% rule for itemized deductions? ›
In the case of an individual, the miscellaneous itemized deductions for any taxable year shall be allowed only to the extent that the aggregate of such deductions exceeds 2 percent of adjusted gross income.
How do I maximize my tax return with deductions? ›
Key Takeaways
Identifying and claiming tax deductions will reduce your taxable income. Exploring tax credits can significantly increase tax refunds. Maximizing contributions to retirement accounts can increase tax benefits. Consider adjusting withholding to optimize tax refunds.
What are biggest itemized deductions? ›
Home mortgage interest. Income, sales, real estate and personal property taxes. Losses from disasters and theft. Medical and dental expenses over 7.5% of your adjusted gross income.
How to get a $10,000 tax refund? ›
How do I get a 10,000 tax refund? You could end up with a $10,000 tax refund if you've paid significantly more tax payments than you owe at the end of the year.
At what income level should you itemize? ›
If the value of expenses that you can deduct is more than the standard deduction (as noted above, for the tax year 2023 these are: $13,850 for single and married filing separately, $27,700 for married filing jointly, and $20,800 for heads of households) then you should consider itemizing.
What deduction can I claim without receipts? ›
What does the IRS allow you to deduct (or “write off”) without receipts?
- Self-employment taxes. ...
- Home office expenses. ...
- Self-employed health insurance premiums. ...
- Self-employed retirement plan contributions. ...
- Vehicle expenses. ...
- Cell phone expenses.
Schedule A (Form 1040) for itemized deductions
Taxpayers use Schedule A (Form 1040 or 1040-SR) to figure their itemized deductions. In most cases, their federal income tax owed will be less if they take the larger of their itemized deductions or standard deduction.
Is it worth itemizing deductions? ›
Itemized deductions might add up to more than the standard deduction. The more you can deduct, the less you'll pay in taxes, which is why some people itemize — the total of their itemized deductions is more than the standard deduction.
Requirements to receive up to $7,000 for the Earned Income Tax Credit refund (EITC)
- Have worked and earned income under $63,398.
- Have investment income below $11,000 in the tax year 2023.
- Have a valid Social Security number by the due date of your 2023 return (including extensions)
4 ways to increase your tax refund come tax time
- Consider your filing status. Believe it or not, your filing status can significantly impact your tax liability. ...
- Explore tax credits. Tax credits are a valuable source of tax savings. ...
- Make use of tax deductions. ...
- Take year-end tax moves.
Deductions subtracted from your gross income to calculate your adjusted gross income are known as “Above-the-line” deductions.
- Retirement contributions and Traditional IRA deductions. ...
- Student loan interest deduction. ...
- Self-employment expenses. ...
- Home office tax deductions. ...
- HSA contributions. ...
- Alimony paid. ...
- Educator expenses.
7 Tips to Maximize Deductions and Credits in 2023
- Make 401(k) and HSA Contributions.
- Make Charitable Donations.
- Postpone Your Income.
- Pay for Your Business Expenses Early.
- Consider Your Losing Investments.
- Don't Forget About Office Expenses.
- Consult a Tax Professional.
Only those who are self-employed or own a business and use a vehicle for business purposes may claim a tax deduction for car loan interest. If you are an employee of someone else's business, you cannot claim this deduction.
What are IRS approved itemized deductions? ›
Itemized deductions are expenses the taxpayer incurred, such as mortgage interest, state or local income taxes, property taxes, medical or dental expenses, or charitable donations.
Is there a limit on total itemized deductions? ›
Is there a Limit on Total Itemized Deductions? There is no limit on itemized deductions for Tax Years 2018 through 2025, there is only certain limits per deduction based on your AGI as outlined in each section above.
How do you bunch itemized deductions? ›
If so, think about using a tax strategy known as bunching. In this technique, you take the standard deduction in one year and then itemize in the next. This is accomplished by planning the payment of your deductible expenses so as to maximize them in the years when you itemize deductions.
What does looks like you ve maxed out the federal $10000 amount for itemized deductions mean? ›
The SALT Deduction is limited to 10,000. There is a max 10,000 limit (5,000 MFS) of property tax and state taxes "SALT". SALT is State And Local Tax. Which includes property tax, any state tax paid like for last year's return and includes any state withholding from your W2s and any 1099s you have.
Why can I no longer itemize deductions? ›
One of the greatest changes brought about by the Tax Cuts and Jobs Act (TCJA) is the elimination of many personal itemized deductions. Starting in 2018 and continuing through 2025, taxpayers will not be able to deduct expenses such as union dues, investment fees, or hobby expenses.
