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.
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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.
Can you max out 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.
What is the 2 rule on 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 to get $7000 tax refund? ›
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)
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.
How to maximize tax write-offs? ›
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.
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.
What can be written off in itemized deductions? ›
Types of itemized deductions
Mortgage interest you pay on up to two homes. Your state and local income or sales taxes. Property taxes. Medical and dental expenses that exceed 7.5% of your adjusted gross income.
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.
Tax credits, tax deductions, and itemized income tax returns are ways you may be able to reduce your taxable income or increase your income tax refund.
Investment Income.
More workers and working families who also have investment income can get the credit. Starting in 2021, the amount of investment income they can receive and still be eligible for the EITC increases to $10,000.
How to get extra $1,000 tax return? ›
For 2021, taxpayers can use either their 2021 or 2019 income to maximize the credit. If you're a college student or supporting a child in college, you may be eligible to claim valuable education credits. The American Opportunity Credit is refundable up to $1,000.
How are people getting 30k back on taxes? ›
The Department of Community Services and Development encourages Californians earning under $30,000 a year to file their taxes to claim the California Earned Income Tax Credit (CalEITC), a cash-back tax credit, and receive a larger tax refund.
Can you force itemized deductions? ›
Force Itemized Deductions
You can force the program to take itemized deductions if you prefer to use itemized deductions (even if they are lower than the standard deduction) over the standard deduction or if you are filing Married Filing Separate and your spouse has itemized.
How to get a bigger tax refund with no dependents? ›
6 Ways to Get a Bigger Tax Refund
- Try itemizing your deductions.
- Double check your filing status.
- Make a retirement contribution.
- Claim tax credits.
- Contribute to your health savings account.
- Work with a tax professional.
According to tax pros, itemizing generally only makes sense if your itemized deductions, taken together, add up to more than the current standard deduction of $13,850 for a single filer and $27,700 for a married couple.
Is there a cap on itemized tax deductions? ›
Overall limit
As an individual, your deduction of state and local income, general sales, and property taxes is limited to a combined total deduction of $10,000 ($5,000 if married filing separately).
Is there a limit on itemized deductions for 2024? ›
For 2024, as in 2023, 2022, 2021, 2020, 2019 and 2018, there is no limitation on itemized deductions, as that limitation was eliminated by the Tax Cuts and Jobs Act.
What happens if itemized deductions exceed income? ›
If your deductions exceed income earned and you had tax withheld from your paycheck, you might be entitled to a refund. You may also be able to claim a net operating loss (NOLs). A Net Operating Loss is when your deductions for the year are greater than your income in that same year.
What is one disadvantage of itemizing your deductions? ›
Unlike standard deductions, itemizing is a manual process that requires gathering documentation and tallying expenses. Depending on how good your records are and the amount of your deductions, this time-consuming process might not reduce your taxable income enough to make it worth the effort.
