There are two types of tax deductions - standard and itemized. While standard deductions are fixed each year and determined by filing status, itemized deductions vary based on the amount of qualified expenses an individual has to claim on their taxes. Itemized deductions are basically a list of expenses that individuals can claim in order to receive a reduction in their taxable income. This reduction in taxable income decreases the amount of taxes that the individual owes.
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But you cannot just deduct any expense you want as an itemized deduction. The IRS has a list of qualified deductions that you can claim on your taxes, including:
- Job expenses that were not reimbursed by your employer
- Self-owned business expenses
- Charitable donations to qualified organizations
- Casualty and theft costs
- State and local income or sales taxes
- Home mortgage interest paid
- Personal property tax on items such as boats and cars
- Real estate tax and points (1% of the home loan value)
Itemized deductions can become a bit tricky, as the IRS has some limitations and restrictions on what you can and cannot claim as an itemized deduction. Also, many people are not always aware of all the deductions that they are eligible to claim. That is why you might benefit from consulting with a tax professional in order to maximize your itemized deductions.
The best way to prepare for tax season is to keep track of your finances throughout the year. Mint makes it easy to get big picture details about your finances in just moments.