Prepping your own taxes involves gathering records, receipts, statements and pertinent documents that pertain to your individual income tax situation. Generally, many of us claim the same deductions and tax credits. The most common ones include items we can claim if itemizing deductions. Of course, we are required to report all sources of income, whether taxable or not.
Choosing Your Deduction Method
When prepping your own taxes, one of the first decisions you will want to make is whether to itemize deductions or claim the standard deduction offered on federal income taxes. To figure out what is best for your personal financial situation, do a rough estimate of your allowable deductions. If the total exceeds the standard deduction then you will want to itemize. This requires gathering appropriate receipts and records to substantiate all claims.
Medical and Dental Expenses
Medical and dental expenses paid out-of-pocket are tax deductible if the total exceeds 7.5 percent of federal adjusted gross income. Generally, unless you have major medical bills, this deduction is difficult to claim. However, you can subtract amounts paid to a health savings account directly from federal adjusted gross income.
Interest and points paid on a home mortgage are tax deductible, as are any qualified mortgage insurance premiums. Your lender should have sent you a 1098 form reporting the amounts you paid. You will need this document when prepping your taxes. In addition, any taxable interest you have earned from savings must be included in the income section of the individual tax form. You should also have a 1099 or a statement from the financial institution where your savings account is held reflecting these amounts.
State and Local Taxes
When itemizing deductions, state and local income taxes you have paid can be included. Real-estate taxes and personal-property taxes are also legitimate deductions on federal income tax returns. Gather receipts for the amounts paid. For many of us, the state and local income taxes we have paid are shown on the W-2 forms received from our employers. In states without income taxes, you can deduct a percentage of income based on the sales-tax rate in your area.
Additional Deductions and Credits
Donations you made to charity during the prior tax year will need to be included in itemized deductions. For amounts more than $250, you will need a receipt from the organization to which you gave the donation.
If you invest in securities that pay you dividends, you will need statements showing these amounts. Any capital gains or losses should be reported, so you will want documents verifying this also.
Moving expenses may be subtracted from your adjusted gross income, if your job demanded the move. You will need records proving this claim.
For taxpayers with dependent children, a child tax credit is given to those of us who do not exceed the income limits. The Internal Revenue Service provides a worksheet to figure out if the credit can be claimed.
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