Claiming Allowable Deductions on Federal Income Tax
Allowable deductions for federal income taxes are referred to as itemized deductions because each type must be listed separately. They include items such as medical expenses, charitable contributions, business expenses (including travel and entertainment), educational expenses, state tax payments, local tax payments, and more. In order to claim these deductions, the tax payer must use Schedule A. Claiming allowable deductions allows the taxpayer to pay less taxes since it reduces the amount of income that is subject to state or federal taxes. They are the same across each state, because they are intended for federal tax filing only. This means that you can claim the same type of expenses on your federal taxes no matter where you live.
Federal income tax laws provide the option to take a standard deduction in place of itemized deductions, making it easy to select the government’s fixed discount instead of trying to maximize on this particular option for lowering the taxpayer’s tax rate. The government sets the numerical amount for the standard deduction, which varies from year-to-year as well as from one filing status to the next.
All taxpayers have the option to claim any of these deductions if they meet the requirements. The taxpayer must have paid the expense they are claiming, and the combined total must be greater than the allowable standard deduction. If this is the case, the taxpayer would claim the total value of their allowable deductions rather than the standard one listed by the federal government.
A set of directions are provided for Schedule A, providing clear instructions on exactly which type of expenditures are allowed. In some cases, as with medical deductions, percentages come into play, meaning that the tax filer cannot claim the entire expense.
Here’s an example of how much taxpayers might save:
If a taxpayer is in the 15% bracket, he could reduce his taxes by $3,000 with a $20,000 itemized deduction (20,000 x 15%). If the taxpayer is in the 35% bracket, he saves $7,000 (20,000 x 35%).
If you need assistance determining your allowable deductions for the purposes of federal income tax, please contact IQTAXX representative.
