When it comes to filing taxes, the standard deduction method is arguably easier than the itemized. However, 25% of taxpayers find that itemizing pays off with a lower tax bill.[1] Expenses like fines, extensive luxury auto depreciation, club dues, and political expenses are not tax deductible, but a huge variety of expenses can be claimed as itemized deductions and are often overlooked due to their specificity. Our team at InVestra is here to give you more insight on just how you can get a leg up on your write-offs this season, so we’ve cataloged a few of the most commonly unnoticed expenses that you can claim as itemized deductions. The Internal Revenue Service recommends that individuals should itemize their deductions when their allowable itemized deductions are greater than their standard deductions. (In 2021, the standard deduction is $12,550 for single filers, $25,100 for joint filers, and $18,800 for the head of household.) Americans who keep good records and opt to file itemized tax deductions have the potential to pocket more income and to avoid handing over more cash than they would through a standard deduction.
Taking Advantage of Your Home Sweet Home
Owning a home is part of the American Dream. It’s also expensive. Luckily, Uncle Sam allows homeowners to write off certain expenses related to owning and buying our homes. Perhaps the most hefty of tax benefits regarding homeownership include the ability to write off mortgage interest. If the interest you paid on your mortgage is larger than your standard tax deduction (see above), you would undoubtedly gain by itemizing. Keep in mind that if you refinanced your mortgage, the limit will depend on the date of your old loan’s origination: if it precedes October 14th, 1987, all the mortgage interest may be deductible. In addition to writing off said mortgage interest, the IRS allows you to deduct home equity loans and lines of credit if the money was spend on home improvements. You can also get tax benefits when you sell your home by deducting property taxes and any mortgage interest you paid for the portion of the year before you sold. Members of the military can even deduct their moving expenses!
Writing Off Auto Registration for Personal Property Taxes
When you buy a car (or an RV, or a boat) you pay a sales tax. In many states, however, this tax resurfaces every year as a reoccurring fee associated with registering your car. If your state uses the value of your car to calculate the percentage of what you pay for your vehicle registration, you can go ahead and write that percentage off as personal property. Note that taxpayers are limited to a $10,000 deduction ($5000 if married and filing separately) for state and local taxes (SALT), which is a combination of property taxes plus either state and local income or sales taxes.
No One Has Ever Become Poor By Giving
Anne Frank coined this sentiment in her book “The Diary of a Young Girl,” which she wrote in the mid-forties, and it remains true and humbling to this day in 2021. If you’re the kind of person that finds joy in going out of your way to give and to help others, you can reduce your taxes this season by increasing your charitable deductions. It’s important to note that traveling for charity also falls under the umbrella of writing off donations, in that you can add traveling expenses for volunteering to your list of charitable deductions (but not the value of your time or services). According to the IRS, you must be “on duty in a genuine and substantial sense throughout the trip, and the primary element of [the trip] must be for charity, with no substantial element of a vacation,” in order to qualify. Keep parking receipts, mileage logs in your car (the standard mileage compensation rate for charitable organizations is $0.14), and public transportation receipts if you’ve taken the bus.
Being Healthy Can Save You A Lot
One often overlooked benefit of doctors’ visits is your opportunity to deduct the cost of transportation used to travel to appointments. This means you can write off expenses like public transportation fees, parking, tolls, lodging (but not meals), and car expenses (the standard mileage rate for these purposes is $0.16 per mile) if the total exceeds the 7.5% limit. Note that if you’re reimbursed by your insurance company for any part of your expenses, that amount can’t be deducted. You may also deduct additional co-payments, lab fees, and prescription drug costs if the total exceeds 7.5%. If you’re an adult over 65 years old with long-term care insurance (LTC), the IRS allows you to deduct a portion of your premium as long as it’s not subsidized by you or your spouse’s employer. Don’t forget that contributions to health savings accounts (HSAs) are tax-deductible. Individuals with self-only high-deductible health plans (HDHPs) can contribute up to $3600, and those with family HDHPs can contribute up to $7200 in 2021.
The Bottom Line
The receipts you save throughout the year for things like work-related expenses, charitable giving, and home ownership are easy, yet often overlooked, ways you could save significant amounts of money during tax season. Even the smallest of expenses add up to lower your bill, so keep a record of everything in order to maximize your deductions.
[1] “Should You Itemize?” Tax Deductions and Credits, TurboTax, last modified January 1, 2020, https://turbotax.intuit.com/tax-tips/tax-deductions-and-credits/tax-deduction-wisdom-should-you-itemize/L8Ln7K0Gp.
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. InVestra Financial Services and LPL Financial do not provide tax advice or services. Please consult your tax advisor regarding your specific situation.
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