About two-thirds of American taxpayers use the Internal Revenue Service standard deductions. They are generous, make filing tax returns simple and can often lead to quick refunds of excess tax withholding. Not all taxpayers qualify for a standard deduction, however, and many can get increased benefits by itemizing deductions. That requires filing a Form 1040, the "long" form, and filling out a Schedule A to list each item.
The most common itemized deduction is home mortgage interest. A taxpayer can deduct 100 percent of the interest paid on a loan on a primary residence and a second home. That includes a basic mortgage, a second mortgage, a home equity loan or a line of credit secured by a home. Mortgage insurance premiums and any loan interest "points" paid during a year also are deductible.
Real Estate Taxes
Real estate taxes are another major deduction. A taxpayer can deduct local property taxes on any number of homes. They must be based on assessed value of the property. A taxpayer can deduct only the amount actually paid in a year, not what was paid to an escrow account for taxes. State income and sales taxes also may be deductible. Check the IRS website for the most up-to-date status of such tax breaks as they can change year to year.
Contributions and Dues
Contributions to a charity recognized by the IRS as qualified, generally a tax-exempt organization, can be deducted, whether they are in cash or property, generally up to half of your adjusted gross income. Receipts and, for non-cash donations worth over $5,000, valuations are required as proof. Dues to professional organizations, such as bar and medical associations, can be deducted if they are necessary to the performance of a job.
Medical and Dental
Medical and dental expenses can be deducted if they exceed 7.5 percent of adjusted gross income (rising to 10 percent in 2013). These include premiums for health insurance, but only the portion paid by an employee and not an employer's share. Self-employed individuals generally can deduct premiums for health insurance for the taxpayer, a spouse and dependents, but this is taken as a business expense and not a personal deduction.
There are a variety of work-related expenses, for such things as education, unreimbursed business travel, use of a car, or expenses incurred in looking for a job in your existing line of work or moving to take a first job. Major losses from theft or such events as tornadoes, hurricanes, earthquakes or other natural disasters can often be at least partly deducted. Any amount covered by insurance or any salvage value to the property reduces the amount of the deduction.
Video of the Day
Brought to you by Sapling
- Comstock/Comstock/Getty Images