To Itemize or Not to Itemize: 4 Questions to Ask Yourself
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Have you ever itemized your tax deductions?
In 2009, almost two-thirds of tax filers claimed the standard deduction, which for married couples filing jointly, was $11,400.
Those who itemized in that category, however, averaged a whopping $32,000 in deductions.
While you may not personally enjoy an increase that large, it’s worth investigating.
To itemize your deductions requires diligent tracking and accounting, but if you can boost your refund, it’s well worth the effort.
Below are things that you should know to itemize your tax deductions.
1. Do You Have The Time?
Itemizing your deductions takes time – especially if you’ve never done it before.
Keep your receipts and ancillary documents to back up each of your deductions. Make sure each one is valid and that the evidence you’ve kept is bullet-proof.
The last thing you want is for the IRS knocking at your door.
After your first year of itemizing, if you file receipts and statements under the same system in subsequent years, the process becomes much more efficient.
2. Do You Have a Lot of Unreimbursed Medical Expenses?
For the 2012 tax year, you can deduct all unreimbursed medical expenses over 7.5% of your adjusted gross income.
Next year, this threshold jumps to 10%. If you don’t make a lot of doctor trips or have to pay many medical expenses out-of-pocket, itemizing might not be right for you.
3. Do You Donate a Lot?
If you make charitable contributions to your church or local non-profit or donate items to Goodwill or The Salvation Army, you can certainly benefit by itemizing deductions.
Make sure you value your non-cash donations reasonably, keep accurate records, and be sure all of your donations go to IRS-qualified charitable organizations.
4. Do You Own a Home?
Homeowners have a lucrative tax benefit at their fingertips with the ability to deduct interest payments from their home mortgage.
This is an especially lucrative deduction for recent home buyers because their monthly payments are weighted toward interest as opposed to principal.
In addition, you may be able to deduct any points you paid on your mortgage, along with your property taxes.
If you see a bit of a windfall because of your itemization, be sure to use your savings prudently.
Consider a retirement investment plan, a fund for your child’s education, or even an emergency fund for your peace of mind.
Saving money on your taxes is great, but only if you put the rewards back to work for you.
What are your thoughts on itemizing your tax deductions?