Each and every tax filer is allowed a personal tax deduction on their return. This deduction lowers the amount of income that taxes are paid on, giving the filer a bit of a break on their adjusted gross income. This number is fixed, meaning that the only way that the standard deduction gets increased is through inflation. However, there is a legitimate way to increase the personal deduction via Schedule A. An individual must have spent money on certain items that are listed in the instructions, but the list is large, allowing for a variety of expenses to be deducted.
Some of the allowable expenses for deduction are medical and dental, mortgage interest, state taxes, gifts to charity and more. It must be noted that itemizing is not always straightforward; in fact, it is best to read the instructions for Schedule A to ensure that you are using the personal tax deduction correctly. Not doing so runs the risk of being flagged for an audit.
For example, medical and dental expenses have their own instruction booklet called pub 502. This publication covers every allowable medical deduction with definitions. The rest of the items are found in the instructions for the schedule.
The act of using Schedule A is very straightforward. First, determine what it is that is going to be itemized and gather the paperwork. In the case of mortgage interest, the bank holding the loan sends out form 1098 that has the total amount of interest paid throughout the year. Real estate taxes and mortgage insurance premiums are also deductible, so be sure to pull out any documentation for those two items while looking for the 1098.
There is no reason to not take advantage of all available deductions for home ownership. Charitable contributions can be itemized up to 80 percent of the contribution. The IRS requires receipts for all contributions, so make sure to obtain them from the organization. As mentioned before, medical and dental expenses are also allowed, but need to adhere to the definitions before they can be used. There is also a little math involved as medical expenses cannot be used until they exceed 7.5 percent of the adjusted gross income on line 38 of form 1040. Use due diligence for all itemized deductions to avoid issues later with the IRS.
Itemizing may not seem like it is worthwhile, what with all of the hoops the IRS makes the filer jump through. The reality is, increasing the personal tax deduction has the potential to net the filer a larger tax return, or reduce the amount that is owed. Being meticulous with the records and the math is key to ensuring that the IRS does not come back later to investigate a questionable entry. The government gives filers the opportunity to keep more money in their pocket as opposed to paying it out in taxes.
Using Schedule A to reduce overall income simply makes sense. The money is there for the filer to keep as long as they play by the rules.