Tempted to simplify your taxes by taking the standard deduction? Don’t write off the possibility of itemizing just yet. It could save you heaps of cash.
The standard deduction is the amount you can deduct from your income pretty much automatically. It’s $5,700 if you’re single; $11,400 if you’re married and filing jointly; $8,400 if you’re filing as head of household.
But if you add up all the expenses you can itemize, tax experts say, the total could be greater than the standard deduction. If that’s the case, you’d deduct your itemized expenses instead of the standard deduction—and end up owing less (maybe even getting a bigger refund!).
It sounds like a snore, and yes—it will take some time—but think of it as a treasure hunt and dig through these six categories:
- Qualified real estate expenses. If you bought or refinanced your home in 2010, or if you have an existing home equity loan, you can deduct the interest on your loans, and some or all of the points you paid, as well as real estate taxes (but not legal fees).
- Sales tax OR state and local income tax. You can deduct whichever amount is greater. How do you know? Seven states don’t have income tax, so those residents would tally up their sales tax for last year. If you made any big purchases—a car, an appliance—your sales tax may exceed your state tax. See more details and use the IRA calculator here.
- Donations to qualified charitable and religious organizations.
- Medical and dental expenses for you and your family that exceed 7.5% of your Adjusted Gross Income (AGI).
- Some types of investment interest you paid or expenses related to taxable accounts (not IRAs).
- Miscellaneous deductions that exceed 2% of your AGI—including job-hunting expenses, union dues, some work-related materials and training, tax-prep fees, and a lot more
If your itemized deductions are indeed greater than the standard deduction, download Schedule A for Form 1040 and itemize away. For more detail, search on IRS.gov. It’s surprisingly helpful.