If you want to reduce your taxes in 2023, consider itemized deductions for medical expenses. However, before you can deduct these expenses, you must meet specific requirements.
First, the amount you can deduct for medical expenses depends on the size of your income. If your adjusted gross income is under $35,000, you can deduct only the first $3,000 of your medical expenses.
If your income exceeds that limit, you can itemize for medical expenses exceeding 7.5 percent of your adjusted gross income. Medical expenses can include deductible expenses such as hospital and clinic bills, prescription drugs, dental work, travel expenses related to medical care, nonprescription medicine, long-term care insurance premiums, and insurance premiums for health and accident insurance.
You can also deduct the cost of dental care, including fillings, dental exams, cleanings, and braces. In addition, you can deduct the cost of prescription glasses, contact lenses, hearing aids, and guide dogs.
Casualty and theft loss
You can claim a deduction if you have suffered a casualty or theft loss. However, there are some rules and guidelines you should know. Your deduction amount depends on the nature of your property and your AGI.
The most obvious way to calculate a deduction is to multiply your adjusted gross income (AGI) by 10%. This will give you the amount you can deduct. You will also want to factor in any reimbursements you receive and any insurance claims you make.
To qualify for a tax break for property damage, you must prove that the damage results from an unexpected event. You must also prove that the loss is unreimbursed. There are several methods to do this. You can use IRS Form 4684, which is part of Schedule A.
State and local taxes
State and local taxes include property, sales, and income taxes. They are taxed based on the value of a property. For example, if a homeowner in New York pays $10,000 in property taxes, they can deduct only $500 of the taxes.
While the state and local tax deduction has been around since the creation of the federal income tax in 1913, it was fully repealed in the Tax Reform Act of 1986. It was partially reinstated in 2004 temporarily.
The SALT deduction today is capped at $10,000 per year. A tax plan signed by President Trump in 2017 also instituted this cap.
As a result, it isn’t easy to obtain full deduction benefits under the current law. In addition, some states offer workarounds to allow additional state taxes to be deducted.
Alternative minimum tax
The alternative minimum tax (AMT) is a federal income tax imposed on a deductible amount of personal income. It is a system that allows individuals to deduct taxes paid, including real estate taxes, motor vehicle registration fees, and sales taxes, to offset their AGI. Some of these deductions are itemized, while others are not. To qualify for the deduction, these deductible items must exceed 7.5% of the individual’s AGI. This rule applies to individuals filing jointly, unmarried individuals, and married couples filing separately.
A significant part of the itemized deductions is the mortgage interest. You can only claim your mortgage interest deduction if you have a mortgage on your home. If you don’t, you can only claim a larger standard deduction. However, you can still claim deductible state income taxes and sales taxes.
Another significant itemized deduction is charitable contributions. These can be given as a cash donation, check, or deductible contribution to a qualified charity.
The same as any other tax year after the TCJA of 2017, we expect an increase in the standard deduction for the 2024 tax season. The increases in standard deduction amounts for all taxpayers only make it more feasible while the number of taxpayers itemizing deductions degrades.
As there is no definite answer to whether or not you should itemize deductions in 2024, you need to see it for yourself. The most common deductions are for the qualifying medical expenses, state and local taxes (SALT), mortgage interest paid, losses, and charitable contributions. If you’ve paid a large portion of your income in the above expenses, there is a good chance that your itemized deductions are going to exceed the standard deduction you’re allowed to take. So, you need to see it for yourself to see if it makes sense to itemize deductions or not.
Popular itemized deductions for 2024 taxes
The Internal Revenue Service is most likely to introduce new deductions that taxpayers can itemize. Due to the pandemic, we expect new changes and we’ve already seen quite a few like the increased child tax credit. What will stay the same is itemized deductions like the qualifying medical deduction, mortgage interest paid, state and local taxes, and charitable contributions.
Itemizing deductions as a business owner
It makes more sense to itemize deductions as a business owner (sole proprietor) because every dime you spend on your business is pretty much deductible. Taking advantage of these expenses gives you a huge boost over the standard deduction. Even your rent expenses can be more than the standard deduction you’re given. Itemizing deductions is a major consideration for entrepreneurs operating their own businesses.
Itemizing deductions as an employee
While you won’t get the same benefits as a business owner would if you were to itemize deductions because you don’t have the same types of expenses, nevertheless, itemizing can be beneficial even more so. Having certain expenses like a mortgage, out-of-pocket expenses for qualifying medical expenses, and other deductible common expenses can grant you a reasonable deduction amount.
The bottom line is regardless of your situation, always check to see if your itemized deductions can reduce your taxable income more than the standard deduction you get would. Plenty of free tax tools can help you figure out which helps you pay less tax.