What are Itemized Deductions?
Back to the Basics for this Nashua, NH Resident
Itemized deductions are a range of expenses that are deductible on your taxes. These include mortgage interest, property taxes, medical and dental expenses that exceed 7.5% of your adjusted gross income, charitable donations and more. Itemized deductions reduce your taxable income significantly, resulting in less taxes paid and, in some cases, even a lower tax bracket.
A Nashua resident was trying to decide whether to file taxes using the standard deduction or to itemize. Looking for professional advice, he sought the experts at Merrimack Tax Associates.
What Allowable Deductions Can Be Itemized?
Homeowners with mortgage interest on a loan that is less than $750,000 (or $1 million if purchased before December, 2017) can be itemized on their taxes. Charitable contributions, investment interest, student loan interest up to $2,500 and gambling losses can all be itemized, ultimately lowering your tax bill. If you have medical or dental expenses for the year that total 7.5% or more over your adjusted gross income, these eligible expenses can be itemized as a deduction.
Standard Deduction vs. Itemized Deduction
If a taxpayer opts to take the standard deduction, in lieu of itemizing, this is a flat amount reduced from your adjusted gross income. In some cases, the standard deduction will amount to more money than the itemized deduction, making this more advantageous for the taxpayer. Taking a standard deduction is simpler when filing taxes, leaving many to just take the standard deduction.
When filing your taxes using itemized deductions, it is important that you adhere to the IRS’ guidelines for these items. Additional tax forms, Form 1040 and Schedule A, are required when itemizing and the taxpayer will need to have proof of these deduction in case of an audit or request for receipts from the IRS.
After reviewing the Nashua resident’s information, the team at Merrimack Tax Associates were able to deduce that he could save plenty by itemizing deductions. This will lower his tax bill for 2020 and going forward.