The great part of working on the information for the Form 1040 is that it allows you to calculate your allowable deductions and tax credits. But what exactly is a deduction? Well, a deduction is an eligible expense that you claim in order to reduce your taxable income. In a way, it’s kind of like a coupon.
Deductions are GOOD. Deductions REDUCE the amount of your income that gets taxed. Let’s say that again! Deductions reduce the total amount of your income on which you have to pay taxes. See, Deductions GOOD.
Schedule A – Itemized Deductions.
The Deductions we’re discussing here will mostly show up on this form, the Schedule A. You have a choice as to whether to Itemize a list of your Deductions, or whether you’d rather just take the set amount that the Congress thinks is a good round number for you to claim (called the Standard Deduction). The only way to really know which is the better choice is for you is to run the numbers yourself. Do it! Then you’ll know for sure that you’ve claimed everything that you can, and have reduced your taxable income as much as is legally possible.
About finding and documenting all your deductions on Schedule A:
Remember Filing? Now is when you’ll be thrilled that you did all that work. (You didn’t do it? Hmmmm. Well, no time like the present — for help, see my “Tax Preparation Checklist”).
What kinds of things are you looking for and what will you do with them? Here are a few examples –
- Add up all your allowable medical expenses. If they meet the allowed criteria, you’ll be able to deduct them.
- Look for state and local taxes paid: for instance things like Property taxes, car license and registration fees.
- Did you keep all the records of your charitable contributions? Add them up!
- Mortgage interest – for instance, if you own a home, you will have received an “Annual Mortgage Statement” that will tell you how much interest you paid on the loan last year. This last number will make you happy, because that amount is a DEDUCTION. See how it works?
Go on, get started. Save yourself some money. And remember, every moment you spend on this you are PAYING YOURSELF.
PS – Below the ‘Income’ section of the 1040, you’ll see ‘Adjusted Gross Income.’ Although not technically Deductions, this is a list of things that can Reduce your Gross Income. In most cases, to know if you are able to claim any of these adjustments you’ll need to use the Worksheets provided by the IRS (http://www.irs.gov/pub/irs-pdf/i1040gi.pdf, starting pg 28), or better yet, use a Tax Professional to guide you through the maze.
For more info contact Litchfield County tax attorney Martha Miller at 860-435-4666, or click on the menu above to explore our website.