First, let's set the record straight: itemized deductions are NOT a deduction from the tax you owe. They ARE a deduction from your income. While the first is most advantageous, don't thumb your nose at a deduction from income. It is beneficial because your taxes are calculated on your income; the less income you have, the less you'll owe for taxes. You list these deductions on Schedule A of the 1040.
For instance, the interest on a home mortgage and the property taxes on your home can be listed as an itemized deduction and therefore save you tax dollars. However, you're thinking: I don't have a home, so I have neither mortgage interest nor property taxes I can deduct.
Don't fear; you may still be able to make good use of Schedule A. Now that you know what an itemized deduction is, let's expose a couple of them because you may get lucky (or unlucky depending on your situation) and have unwittingly incurred them: miscellaneous itemized deductions and unreimbursed medical expenses.
Miscellaneous itemized deductions are often forgotten and overlooked. If these items exceed 2% of adjusted gross income (AGI), you can itemize them (meaning you can include them as a deduction.) Here are a few expenses that qualify:
- If you had a casualty loss, the appraisal fees associated with obtaining the amount of the loss
- fees to collect interest or dividends
- legal fees for producing or collecting taxable income
- losses on deposits in a bankrupt or insolvent institution
Go knock yourself out reading all about the rest of the large expense deductions.
Ever receive one of those expensive band aids at the hospital? And you thought filling up your tank with gas was expensive! Unreimbursed medical expenses may also be deductible if they're greater than 7.5% of your AGI. Here's the rub: you don't ever want to be that sick; that would put you in the category of nearly dead.
However, here's something to think about: you may have been putting off some medical expenses. 2011 may just be the year to have those procedures done. If you can "bunch" all of those procedures in one year, you may accumulate enough so they are in fact over 7.5% of your AGI. It takes planning.
Are there any miscellaneous items or medical expenses that you think you may have in 2011 that would allow you to itemize and deduct?