Hey guys, it’s Bette Hochberger, CPA, CGMA. As tax season comes and goes, finding ways to reduce your tax bill becomes a priority. One effective strategy is utilizing itemized deductions. Itemizing your deductions can potentially lower your taxable income, resulting in significant tax savings. 

Here’s how you can make the most of itemized deductions to reduce your tax bill.

Understanding Itemized Deductions

Itemized deductions allow taxpayers to list specific expenses that are deductible, as opposed to taking the standard deduction. Common itemized deductions include mortgage interest, state and local taxes, medical expenses, charitable contributions, and certain miscellaneous expenses. By itemizing, you can subtract these eligible expenses from your gross income, potentially lowering your overall tax liability!

Mortgage Interest

One of the most substantial deductions for many taxpayers is mortgage interest. If you own a home and have a mortgage, you can deduct the interest paid on your loan. This deduction is particularly beneficial for new homeowners, as the interest payments are typically higher in the early years of the mortgage.

State and Local Taxes (SALT)

You can deduct state and local taxes paid, including property taxes and either state income taxes or state sales taxes. The SALT deduction is capped at $10,000 ($5,000 if married filing separately), but it can still provide significant savings for taxpayers in high-tax states.

Medical and Dental Expenses

Medical and dental expenses that exceed 7.5% of your adjusted gross income (AGI) are deductible. This includes expenses such as doctor visits, prescription medications, and certain medical procedures. Keeping detailed records of your medical expenses throughout the year can help maximize this deduction.

Charitable Contributions

Donations to qualified charitable organizations are deductible. This includes cash contributions, as well as donations of property or goods. Be sure to keep receipts and records of your donations, as the IRS requires documentation for charitable deductions.

When to Itemize vs. Taking the Standard Deduction

Deciding whether to itemize or take the standard deduction depends on which option provides the greater tax benefit. For 2023, the standard deduction is $13,850 for single filers and $27,700 for married couples filing jointly. If your total itemized deductions exceed these amounts, itemizing will reduce your taxable income more effectively. It’s essential to compare both options and choose the one that results in the lowest tax bill.

How to Itemize Deductions

To itemize deductions, you’ll need to fill out Schedule A (Form 1040) and list all eligible expenses. This process requires meticulous record-keeping and documentation of your deductible expenses throughout the year. Using tax preparation software or consulting with a CPA can help ensure that you correctly itemize your deductions and maximize your tax savings.

Consult a Tax Professional

Tax laws and regulations can be complex, and it’s easy to overlook deductions or make errors that could result in penalties. Consulting a CPA or tax professional can provide valuable guidance and ensure that you’re taking full advantage of all available deductions. A tax professional can also help you navigate any changes in tax laws that might affect your deductions.

In conclusion, itemizing deductions can be a powerful tool to reduce your tax bill if your eligible expenses exceed the standard deduction. By understanding and utilizing these deductions, you can potentially lower your taxable income and save money. Careful record-keeping and consulting with a tax professional such as myself can help you maximize your itemized deductions and achieve significant tax savings.

If you’re looking to save money on your taxes, schedule a meeting with us and let’s start YOUR tax planning today. 

I’ll see you all next time!