- Documents you need to do your taxes infographic
- 5 questions to decide whether to itemize deductions article
- How will marriage affect your taxes? infographic
- Calculating tax deductions video
- Anatomy of a W2 video
- The marriage penalty video
- Decoding your tax bracket infographic
- Understanding the alternative minimum tax (AMT) video
- KEY TAKEAWAYS
5 questions to decide whether to itemize deductions
As you prepare your tax return, you may wonder: Should I itemize deductions? Generally, you’ll want to itemize if it will allow you to deduct more income than the standard deduction—which is a fixed amount based on your filing status. Below are a few questions to get you started. Keep in mind, there are a lot of deductions out there, so check with a tax accountant or head to the IRS website if you think you may qualify for more.
Generally, if the mortgage on your main or second home is under $1 million, the interest you pay is tax deductible. You can also deduct the interest you pay on most home equity lines of credit and home equity loans up to a certain amount. Real estate taxes may also be deductible.
Caution: The limit for how much mortgage interest is deductible may vary depending on your filing status. Property taxes on rental or business properties cannot be deducted by itemizing, though they may be deductible as business expenses.
You can deduct qualified medical expenses such as preventive care, surgery, dental work, vision care and more. If you took prescription medication or used a hearing aid, those expenses may also be deductible.
Caution: If you are younger than 65, only medical expenses that exceed 10 percent of your adjusted gross income can be deducted. After age 65, the threshold is 7.5 percent of AGI. Note that you cannot deduct expenses that were reimbursed by your insurance company or employer.
Gifts and donations to IRS-approved nonprofit groups are tax deductible. The IRS counts everything from cash gifts, cars and household items to stocks and real estate as acceptable donations. In order to have your contribution recognized by the IRS, be sure to keep receipts, bank records or written communications that contain the name of the organization, as well as the date and amount of the contribution.
Caution: Make sure the organization you are donating to is considered a tax-exempt charitable organization by the IRS.
If you’re self-employed, or fit a few other narrow conditions set by the IRS, you may qualify for a home office deduction if you worked from home. Generally, the deduction amount is based on the size of the workspace.
Caution: The definition of home office is very narrow, and rules around claiming the deduction are very strict. For example, the area where you do business must be used exclusively for work-related activity.1
1 Exceptions to this rule include using your home office as a daycare or using it to house inventory.
Many people consider business expenses to be a deduction for the self-employed, but even if you work for an employer, you may qualify for a deduction. If you spend more than 2 percent of your adjusted gross income on business-related expenses, like travel, union dues or certain uniforms not covered by your employer, you may be eligible.
Neither Bank of America nor any of its affiliates or financial advisors provide legal, tax or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.
The material provided on this website is for informational use only and is not intended for financial or investment advice. Bank of America and/or its partners assume no liability for any loss or damage resulting from one's reliance on the material provided. Please also note that such material is not updated regularly and that some of the information may not therefore be current. Consult with your own financial professional when making decisions regarding your financial or investment management.