Itemized Tax Deductions Most Taxpayers Don’t or Can’t Use

Medical Deductions:

   Limited by 7.5% of your AGI. Example, if your adjusted gross income is $100K, your medical deductions would have to be over $7,500. If your medical expenses totaled $8K for the tax year, your medical deduction would be only $500.

State and Real Estate Property taxes are capped at $10K:

   You can deduct the state income taxes withheld from your paycheck and real estate property taxes paid during the tax year, but only to the maximum level of $10K. If your real estate taxes total to $15K per year and you had another $5K withheld from your pay for a total of $20K in taxes paid, you’d only be able to deduct $10K, the other half would not be deductible.

Casualty and Theft Deductions:

   This is only available if the losses you have sustained were due to a nationally declared disaster and also carries limitations in how it gets calculated for write off on your return.

   If your total itemized deductions are LESS than the standard deduction based on your filing status, then you take the greater of these two options, which would be the standard deduction amount. For example, if you are single, your standard deduction would be $12,400. Your itemized deductions would have to be greater than this amount to help you in reducing the amount of income being taxed. With so many limitations on some of the most common deductions taxpayers have, it’s very difficult to get over this hump.

Charitable Deductions:

   Charitable contributions get added to your other itemized deductions and can help you exceed the amount of the standard deduction. You should take into consideration the amount of other deductions you plan to itemize to see how much your donations would have to be to assist in increasing your itemized deductions. For most individuals, this amount could be sizeable, particularly if you don’t have other itemized deductions you can write off like mortgage interest, property taxes, etc. This is why charitable contributions, in a lot of cases, is also considered a tax deduction most can’t use. Recent tax laws have allowed for up to $300 to be treated as a deduction in income, even if you don’t itemize. If you’ve given thousands to charity, you’re still losing the ability to deduct a sizeable amount of donations.

   Just when you thought it couldn’t get any worse, it does! If you file separate from your spouse, both of you must itemize or use the standard deduction. For example, if your spouse would like to deduct the mortgage interest and property taxes and you would have no itemized deductions, like charity or medical, you could write off on a separate return, one would end up being limited to the amount of itemized deductions, which would equal $0 for the spouse with no deductions. To try to minimize the tax blow to the spouse with nothing to write off, both would have to choose to use the standard deduction on their returns.

   These concepts are what makes tax planning so critical even for the taxpayers earning less than $50K a year. To ensure you can take advantage of tax laws relevant to you, we suggest you work with a tax professional who offers tax planning throughout the year.