Filing an income tax return can be a tedious process, but it also presents the opportunity to save money through tax deductions. Itemized deductions are various expenses the Internal Revenue service lets you subtract from your taxable income. Common itemized deductions include property taxes, mortgage interest, charitable donations and certain business costs.
Homeowners usually have to pay income taxes to state and local governments, but property taxes can count as an itemized tax deduction. The Internal Revenue Service allows them as long as they're based on the assessed value of property and they're imposed uniformly on all residents in your area. This can be tricky. If the city installs speed bumps on your street, and the cost of the bumps results in a tax imposed on everyone on your block, it doesn't count as a deduction since the people on the next block over weren't taxed.
If you've taken out a mortgage loan, you're probably paying hundreds or thousands of dollars in interest alone. If you itemize, you can deduct the mortgage interest paid on your primary residence and one secondary residence. You can only take a partial deduction if your deductible mortgage balances exceed $1 million. If you have more than one secondary home, you can only claim one of the homes as a second home for purposes of the mortgage interest deduction, but you can choose which home to claim.
The IRS will let you itemize donations made to corporations, trust, funds and foundations organized and operated for religious, literary, scientific, educational or charitable purposes. Organizations set up for the prevention of cruelty to children or animals also qualify for tax deductible contributions. You can even deduct gifts of property made to charity up to its fair market value. Fair market value is the property would fetch on the open market.
If you operate your own small business, you can itemize some expenses. Let's say you run a home office. Utilities, repairs and even office supplies are tax deductible since they're necessary to keep your business going. The cost of operating a vehicle for business purposes also counts as an itemized deduction. You can take a deduction equal to your actual vehicle expenses as long as they directly relate to your business. As of 2012, the deduction was 55.5 cents per mile.
Miscellaneous deductible expenses include the cost of insurance, licenses and fees related to your job. Fees for tax advice fees, legal affairs, and union dues can also be itemized deductions. The IRS has a comprehensive list of miscellaneous deductions on its official website.
- Internal Revenue Service: Tax Topics - Itemized Deductions
- Internal Revenue Service: Topic 503 - Deductible Taxes
- Internal Revenue Service: Topic 505 - Interest Expense
- Internal Revenue Service: Topic 506 - Charitable Contributions
- Internal Revenue Service: Publication 529 - Miscellaneous Deductions
- Internal Revenue Service: Publication 526 - Main Content
- Internal Revenue Service: Transportation
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