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Many taxpayers reduce their tax bills significantly by deducting common expenditures from their income. To use these deductions, you have to itemize them on IRS Schedule A instead of taking the standard deduction. As we’ll explain in detail below, itemizable deductions include medical and dental expenses, state and local taxes, interest expense, charitable contributions, and theft and casualty losses.
Two key points: Before you claim any of these deductions, you have to be sure that your items qualify under tax law rules. And once you add them up, you need to compare the total amount of your itemized deductions with your standard deduction. Today’s higher standard deductions may offer greater savings than itemizing.
Below is a detailed list of the deductions you may be able to take, followed by information to help you decide whether to itemize or take the standard deduction. Finally, we’ll give a few tips on preparing your tax return to make sure you do the job right. First, let’s talk about write-offs.
Deductible (and nondeductible) expenses
If you elect to itemize, you can deduct a variety of common expenses. To claim these deductions, you must complete the IRS Schedule A and file it with your Form 1040. Common itemized deductions include medical and dental expenses, state and local taxes, interest expense, charitable contributions, and theft and casualty losses, which are explained below. Some deductions are limited by ceiling amounts or by phaseouts that reduce their amounts if your income exceeds specified levels.
Generally personal expenses, other than qualifying medical expenses, are not deductible. Nondeductible expenses include—but are not limited to—alimony paid pursuant to agreements made or substantially modified after 2018, fines and penalties, funeral expenses, nonbusiness credit card or check-writing fees, and fines and penalties.
7 Examples of tax write-offs
1. Medical and dental expenses
Medical and dental expenses can be claimed as itemized deductions but only to the extent that the total amount of such expenses exceeds 7.5 % of your AGI, i.e., adjusted gross income, for the tax year. (AGI is the amount of your total gross income from all sources reduced by certain statutory exclusions, for example, tax-exempt interest.) For example, if you have AGI of $100,000 for a year and spend $10,000 on qualified medical expenses, $7,500 of these expenses would be nondeductible, but the remaining $2,500 would be deductible.
Medical expenses that qualify for deduction include medications, equipment such as wheelchairs, eyeglasses and hearing aids; treatment prescribed by medical and dental professionals; transportation costs primarily for and essential to medical treatments; your out-of-pocket payments for medical, dental, and qualified long-term medical care insurance. Nondeductible expenses include costs for cosmetic surgery (except for deformity due to congenital abnormality, injury, or disease), insurance premiums paid by your employer, diet food, and Medicare tax. The IRS provides an online tool to determine if you can deduct your medical expenses.
2. ‘SALT’(state and local taxes)
Taxes on income
You can deduct up to $10,000 of state and local taxes—“SALT”—either state and local income taxes or state and local general sales taxes, but not both. Penalties and interest charges for underpayments or late tax payments are nondeductible. Certain state-mandated payments are treated as state and local income taxes and are deductible. These include mandatory contributions to the California, New Jersey, or New York Nonoccupational Disability Benefit Fund, Rhode Island Temporary Disability Benefit Fund, or Washington State Supplemental Workmen's Compensation Fund; to the Alaska, California, New Jersey, or Pennsylvania state unemployment funds; and to state family-leave programs, such as the New Jersey Family Leave Insurance (FLI) program and the California Paid Family Leave programs.
If you deduct state and local general sales taxes, you can report the actual amount that you paid, provided that you keep actual receipts, or you can use the optional state and local tax tables published each year by the IRS. If you lived in more than one state during a year, the IRS provides special instructions and worksheets for using the tax tables.
You also can deduct state and local real property taxes paid for personal real estate not used in a trade or business. Annual personal property taxes based on the property’s value also can be deducted. Deductions are not permitted for foreign taxes on real property, charges for services, or for improvements that increase your property’s value. However, maintenance charges—for example, to repair existing sidewalks—are deductible.
3. Interest payments
Generally, personal interest expenses are not deductible. However, interest payments for qualified home mortgage loans, certain student loans, and some investment expenses can be deducted. Interest and points paid on home mortgage loans used to build, buy, or improve your home qualify for itemized deductions. The mortgage loan must be secured by your main home or a second residence. It can be a first or second mortgage, a home-equity loan or refinanced home mortgage loan. If a portion of a home mortgage loan is not used to build, buy, or improve a home, the interest allocable to the diverted loan proceeds cannot be deducted as home mortgage interest.
Moreover, interest is not deductible on the portion of a home mortgage loan that exceeds certain statutory ceilings. exceeds certain statutory ceilings. For loans made on or before December 15, 2017, interest on up to $1 million of loan proceeds used for qualifying purposes is deductible; interest on amounts in excess of the $1 million ceiling are not deductible. For loans made after December 15, 2017, the ceiling falls to $750,000.
Interest on student loans for your own, your spouse’s, or your dependent’s higher education expenses is deductible up to the lesser of $2500 or the amount actually paid. However, the amount of the deduction phases out gradually and eventually is eliminated, if your income exceeds an annually determined ceiling amount.
In addition, interest on loans for property held for investment generally is deductible. However, interest on loans for investments that are passive activities or securities that pay tax-exempt interest is not deductible.
4. Charitable contributions
Charitable contributions to qualifying organizations—whether in cash, property, or as out-of-pocket expenses incurred doing volunteer work for such organizations—are tax deductible. Qualifying organizations have religious, charitable, educational, scientific, or literary purposes, or work to prevent cruelty to children or animals. Certain gifts to some governmental organizations and other specially designated causes also qualify.
Qualifying charities include such organizations as the Boy Scouts of America, the Red Cross, the American Cancer Society, nonprofit hospitals and nonprofit schools, churches, and synagogues. Organizations that do not qualify for deductible charitable contributions include unions, chambers of commerce, sports leagues, homeowner associations, political groups, and for-profit entities.
You also cannot deduct the value of your services to a charity, nor can you deduct the value of blood donated to a blood bank. If a gift includes any benefit to the donor, the value of the benefit is not deductible. For example, if a ticket for a charity dinner costs $500 and $300 is allocated for the cost of the dinner, only $200 of the ticket price is deductible.
Ceilings on charitable deductions
The maximum amount of your deductible charitable contributions for a year depends on the type of donee organization; the form of the contributions—e.g., cash or check, securities, capital gain property—and the level of your AGI (gross income reduced by certain exclusions and deductions).
Charitable organizations in the most favored category are often referred to as “50% limit organizations” because you can contribute up to 50% of your AGI to them each year. A special rule for these 50% limit organizations allows you to make cash or check contributions of up to 60% of your AGI. All other charitable organizations are “30% limit organizations” to which you can contribute up to 30% of your AGI for the year.
Charitable organizations that enjoy broad public support generally qualify as 50% limit organizations. These include, churches, nonprofit educational organizations with a regular faculty and curriculum, nonprofit hospitals and medical research organizations, private foundations engaged in active charitable activities (“operating foundations”), and public governmental entities.
The tax law imposes additional limits on certain contributions. For example, gifts of capital gain property generally are subject to a limit of 30% of your AGI, even if made to 50% limit organizations. Similarly, gifts “for the use of” rather than directly to an organization are subject to a 30 % AGI ceiling and must entail a legally binding restriction that prohibits using such gifts for any purpose other than that you designate. The IRS publishes special worksheets to help taxpayers classify donee organizations, calculate the applicable limitations on deductions, and determine the ordering of contributions of different characters to organizations with varied limits in order to arrive at the allowable amount of charitable deductions for the year.
As with all itemized deductions, it is important to maintain records—for example, cashed checks or receipts, valuations, and appraisals—that confirm your contributions, their values and their dates. However, a special requirement applies if your gift is worth $250 or more. In order to deduct such charitable contributions, you must have a contemporaneous written acknowledgement from the recipient organization that states the amount of money and describes, but need not value, any property donated. The acknowledgement also must state if you received any quid pro quo, i.e., goods or services, other than intangible religious benefits, in return for the donation, and it must describe the goods or services and estimate their value.
If you deduct $500 or more for certain gifts of a clothing or household item—or if you deduct $5000 or more for a gift of non-publicly traded stock, art, collectibles, jewelry, furniture or real estate—you must provide a qualified appraisal that is signed and dated by a qualified appraiser. Tax regulations impose detailed appraisal rules and information requirements for gifts of various types of property with higher values. Appraisal and information requirements increase for gifts of art valued beginning at $20,000 or more. Additional requirements and fees apply for art gifts valued at $50,0000 or more and for certain categories of non-publicly traded property valued at $500,000 or more. Special tax forms must be filed depending on the type and value of certain charitable contributions.
5. Casualty and theft losses
Individual taxpayers who suffer casualty or theft losses of personal-use, i.e., non-business and non-income-producing property, in tax years 2018 through 2025 cannot deduct such losses unless the loss is attributable to a federally declared disaster. The itemized deduction for such a loss is calculated by reducing the amount of the loss by $100 and then further reducing the remainder by 10% of your AGI.
However, if the loss of personal-use property due to casualty or theft occurred in a county eligible for public assistance and was attributable to a major disaster declared under specific presidential authority, the loss is a qualified disaster loss and the deduction is reduced by only $500. A qualified disaster loss can be deducted without itemizing.
In many situations, even for casualty and theft losses that are deductible, you will have to comply with complex qualification and calculation rules. These detailed rules include the definition of eligible losses, losses related to passive activities and businesses, non-deductibility of losses caused by the taxpayer’s own acts, and offsets for insurance proceeds. The IRS publishes detailed instructions and worksheets for determining casualty and theft loss deductions. However, for significant losses, you may decide it worthwhile to use premium tax preparation software or to consult a tax professional.
6. Exclusions from income
In addition to the standard deduction—or, if elected, itemized deductions—individuals benefit from special “above-the-line” exclusions from income as well as certain deductions from gross income that are allowed in calculating AGI. Generally, these amounts are reported on tax information returns provided to recipients by the payers and do not require you to perform the analysis and calculations necessary for claiming many itemized deductions.
Common above-the-line exclusions are tax-exempt interest, certain insurance proceeds, employer contributions to qualified retirement and health insurance plans and distributions from Roth IRAs. In addition, an employee’s own 401(k) contributions are excluded from income up to the ceiling amount set annually. Any additional 401(k) contributions made by employees on an after-tax basis, are transferred to 401(k)s by employers prior to the payment of compensation, but nonetheless are included in taxable income.
If you are at an age that requires you to take “required minimum distributions” (RMDs) from your traditional IRAs, any charitable contributions made from your IRAs reduce the amount of taxable RMDs that you must receive and report as income.
Many individuals can deduct contributions to traditional IRAs from their gross income. If you have a trade or business, business-related expenses are deducted from your business income and the net business income or loss is accounted for in determining gross income. Similarly capital gains and losses are netted, with net losses of up to $3000 per year deductible against other income.
7. Tax credits
You also may be entitled to claim one or more tax credits. Tax credits can reduce your tax liabilities by one dollar for every dollar of tax credit. Some tax credits are refundable so that you will get paid back the amount of a refundable credit that exceeds your tax liability.
Most credits have very specific requirements such as income phase-outs, student or first-time homebuyer status, or purchases of residential clean energy equipment or electric vehicles. Workers with low and moderate incomes can claim the refundable earned income tax credit (EITC). If you have dependent children, you may qualify for the child tax credit. You also may be able to claim a child and dependent care tax credit for paying someone to care for a child, spouse, or other dependent in order to work or be a fulltime student.
Standard deduction vs. itemized deductions
Now that you know what you might be eligible to deduct, the question is: Should you take those deductions? For most taxpayers, the choice of whether to itemize deductions or to claim a standard deduction is a critical threshold issue in preparing their tax returns.
The 2017 Tax Cuts and Jobs Act nearly doubled the standard deduction and indexed it annually for inflation. This change significantly increased the number of individual taxpayers claiming the standard deduction and correspondingly reduced the number of itemizers. Before the tax law change became effective, 68.9% of individual returns claimed the standard deduction for the 2017 tax year. With the change in effect in 2018, the percentage of returns claiming the standard deduction increased to 87.3%.
For 2023, a married couple filing a joint return can claim a standard deduction of $27,700, an increase of $1800 above the 2022 amount. Single filers and married individuals filing separately can claim a 2023 standard deduction of $13,850, up $900 from 2022. The 2023 standard deduction for heads of household is $20,800, an increase of $1400 over 2022.
If you are a senior citizen or blind, you are entitled to higher standard deduction amounts. If you are married, and you or your spouse reaches age 65 before the end of 2023, you can add $600 to your standard deduction amount for each spouse who has attained age 65. Similarly, an additional $600 can be claimed for each blind married taxpayer on a joint return. For an unmarried, single individual who is blind or is over age 65, the additional amounts in each case.
Preparing your tax return may be a simple process if you have only W-2 earnings and Form 1099 interest and dividends to report and claim a standard deduction. You can easily transfer amounts from your information returns to a Form 1040. However, even with a simple return, you might overlook some tax benefits, for example, the earned income or child tax credits, and pay more tax than legally required.
Help for tax preparation
Even if your tax situation is straightforward, seeking publicly available information and using tax-preparation tools can save you money. The IRS provides a free online tax filing tool on its website for taxpayers whose AGI does not exceed a ceiling amount, which was $73,000 for 2022 returns. The decision to prepare your own return, use tax-preparation software, or consult a tax professional such as a CPA or credentialed enrolled agent, will depend on the complexity of your financial affairs, your familiarity with tax concepts and your willingness and ability to devote time and money to tax compliance.
|Federal filing fee
$0 to $219 for DIY
$0 to $195 for DIY
$0 (*Even for freelance and self-employed)
|State filing fee
$0 to $64 for DIY
$0 to $50 for DIY
|Tax assistance available?
No—only tech support
When preparing your return for 2023, be sure to confirm that the assistance you are seeking is based on 2023 rules. The IRS generally updates its website information near the end of a year, or early in the following year if the Congress passes new tax laws late in its session.
The producers of some major commercial software programs also offer free online tools, generally for taxpayers with moderate or low incomes. Cash App Taxes offer free software for both federal and state returns. Turbotax offers free federal returns but charges for state filings. For low-income and older taxpayers, the IRS sponsors free individual tax-preparation assistance.
Purchase software or consult tax professional
Tax-return preparation programs are available in a range of software packages, from free tools for people with lower incomes to more sophisticated, higher-priced software designed for more complicated situations, involving investment and self-employment income. They provide varied support features, from links to instructional articles to telephone inquiry services. However, for very complex or unusual circumstances—for example, major qualified casualty losses, extensive personal business income and expenses, or litigation other legal costs—paying fees to a tax professional may prove a sound investment.
TIME Stamp: Know the deductions you’re allowed to take and save money
The Internal Revenue Code authorizes a variety of tax deductions that can reduce your tax bill, in some cases significantly. You can maximize your deductible expenses by checking the tax advice that the IRS publishes on its website, using tax-preparation software, or, for complex issues, consulting expert tax professionals. By carefully taking advantage of common deductions, you often can realize substantial tax savings.
Frequently asked questions (FAQS)
What can homeowners deduct?
Homeowners who borrow to purchase or improve their home or a second residence can deduct the amount paid for points and interests if the loan is secured by the house. For loans made on or before December 15, 20 17, interest on loans up to $ 1 million is deductible. For loans made on or after December 15, 2017, the ceiling falls to $750,000. State and local property taxes on the residences are also deductible. In addition to deductions, homeowners can claim tax credits for qualifying clean energy and energy efficient equipment and improvements.
What is the standard deduction for tax year 2023?
Your standard deduction depends on your filing status. Taxpayers who are age 65 or older and/or blind are entitled to additional amounts. Taxpayers who file their own returns but are claimed by another as dependents can claim a limited standard deduction. The standard deductions for 2023 are:
Married, filing jointly
Married, filing separately, qualifying surviving spouse
Head of Household
Dependent Taxpayer of Another Taxpayer
Greater of $1,250 or $400 + earned income
Single or head of household:
|Taxpayer 65 or older or blind
|2023 Additional Amount
65 or older or blind
65 or older and blind
Married filing jointly or separately:
|Taxpayer 65 or older or blind
|2023 Additional Amount
65 or older or blind
$ 1,500 per qualified individual
65 or older and blind
$ 3,000 per qualified individual
What can I claim as a tax deduction without a receipt?
Not much. You must be able to substantiate your deductions—for example with checks, credit card records, or receipts—that indicate the amount of the payment, its purpose, and its date. To deduct charitable contributions of $250 or more, you must receive actual receipts that are contemporaneous written acknowledgements of your contribution, its amount, and its date from the recipient. If a charitable contribution provided you with any property or services, the receipt must report the nature and amount of the quid pro quo. Special rules apply for gifts of property, in particular art and property of significant value.
What are tax deductions?
Tax deductions are amounts that you have paid during the year that are subtracted from your income in determining your tax liability. Deductions on federal tax returns are permissible only for expenses and allowances that are authorized by the Internal Revenue Code; in the case of state or local tax returns, the jurisdictions’ own tax codes must authorize the deductions.
How do you claim tax deductions?
You can claim your allowable, itemized deductions for certain personal expenses by reporting them on your Schedule A for IRS Form 1040. To claim investment interest expense, complete and file Form 4952 that determines the amount allowable as a deduction. If, as a sole proprietor, you operate a trade or business or practice a profession, you can deduct qualified related expenses on Schedule C.
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