Tax Deductions 2023 Checklist
2023 Tax Deductions Checklist: Don’t Leave Money on the Table
Hey there, tax filer! The end of the year will be here before you know it. While the thought of doing your taxes might fill you with dread, there are ways to make the process less painful. The key is not leaving money on the table by missing out on tax deductions and credits you’re entitled to.
The tax code is complicated, but many deductions are pretty straightforward. Whether you take the standard deduction or itemize, you need to know your options. This checklist will walk you through the major federal tax deductions for 2023 so you can file accurately and maximize your refund. Why give the government more than you have to? Read on to make sure you’re taking advantage of every tax break you deserve. The extra cash in your pocket will make tax season a little brighter.
One of the results of the Tax Cuts and Jobs Act was removing the deduction for un-reimbursed employee business expenses until 2026 Tax Returns. This means that employees can no longer reduce their taxable income by deducting employee business expenses or job search expenses. The entire category for Miscellaneous deductions was eliminated until 2026.
Claim These 11 Tax Deductions to Reduce Your Tax Bill
Want to pay less in taxes this year? Make sure you claim all the income tax deductions you’re entitled to. Here are 11 tax deductions you should look into:
- Medical expenses – Unreimbursed doctor visits, prescription drugs, insurance premiums, etc. The threshold is 7.5% of your income.
- Mortgage interest – The interest you paid on your primary residence and second home. Points paid to refinance also qualify, but must be amortized over the life of the loan.
- Charitable contributions – Cash, property, and goods donated to qualified charities. Get receipts for all donations.
- College tuition – Qualified tuition, fees, and student loan interest for yourself, spouse, or dependents. Save all receipts and forms. Deduction is a tax credit.
- Teacher’s expenses – If you’re an educator, you can deduct up to $300 of unreimbursed expenses on things like books, supplies, and software.
- State and local taxes – Income taxes, real estate taxes, and personal property taxes you paid. Sales taxes also qualify if you kept receipts.
- Childcare and dependent care – Expenses for daycare, babysitting, summer camps, and other care so you can work. You’ll need the provider’s tax ID.
- Alimony payments – Alimony, separate maintenance, and spousal support payments made to your ex-spouse under a divorce or separation agreement if divorce was finalized before December 31, 2018.
- Gambling losses – Losses can be deducted up to the amount of your winnings. Keep records like receipts, tickets, statements, and logs.
- IRA contributions – Contributions you made to traditional IRAs may be deductible, depending on your income and whether you participate in a retirement plan at work.
- Student loan interest – Interest paid on qualified student loans for yourself, spouse, or dependents. You’ll need form 1098-E from the lender.
If you have a side business, be aware that you will have many more small business tax deductions available to you to reduce self employment income.
Take advantage of every deduction you deserve. Keep good records and talk to your tax pro to make sure you get the maximum refund. The extra cash will be worth the effort!
Medical Expenses Can Save You Money if Over 7.5% of AGI
If you have high medical expenses, you may be able to deduct them and lower your tax bill. For 2023, you can deduct medical expenses that exceed 7.5% of your adjusted gross income.
- Doctor visits, dental work, prescription drugs, therapy, medical equipment if you paid for it, you can likely deduct it. Make sure you keep records of all payments.
- Don’t forget health insurance premiums. The amount you pay for your health insurance plan, as well as any long-term care premiums, count toward your total medical expenses. Medicare premiums also qualify.
- You can also deduct transportation to and from medical care. Track your mileage or keep receipts for public transit, parking, or ride-sharing to medical appointments. The costs of lodging for medical care away from home also qualify.
- Alternative treatments like acupuncture, chiropractic, and physical therapy are deductible. So are things like eyeglasses, contact lenses, and hearing aids.
The standard deduction nearly doubled, so you’ll have to have significant medical expenses before itemizing makes sense. But if your costs were high due to a medical emergency or long-term care for yourself or a dependent, itemizing could result in major tax savings. Talk to your tax pro to determine if itemizing is right for your situation. Every dollar you can deduct is money that stays in your pocket.
With some organization and the help of your medical care providers, you can uncover all the deductions you’re entitled to and gain peace of mind that you received the maximum tax benefit for your healthcare costs. Your wallet will thank you!
State and Local Taxes (SALT) Deduction Is Limited but Still Useful
Even with the new higher standard deduction, the state and local tax deductions also known as SALT can still save you money. The Tax Cuts and Jobs Act limited the SALT deduction to $10,000 per year, but for many taxpayers that’s still a sizable chunk of change.
State Income Taxes
If you pay state income taxes, you can deduct that amount, up to the $10,000 cap. Make sure you have records of how much you paid, like W-2, 1099 and 1098 forms. Some states don’t have an income tax, so this may not apply to you.
Homeowners can deduct the property taxes they pay each year on their primary residence and any additional homes. Property tax bills, statements and payment receipts should be kept as records. Renters cannot deduct property taxes, unfortunately.
In some cases, sales taxes paid on major purchases like vehicles can also be deducted. You’ll need the receipts and records from those big-ticket items to claim the sales tax deduction. The sales tax deduction is often an either/or with the state income tax deduction. You can only choose one or the other.
Even with the new $10,000 limit, the SALT deduction can add up to major tax savings. Be sure to keep good records of all your state and local tax payments in case of an audit. And if your total SALT taxes paid are more than $10,000, you may want to consider speaking with a tax professional about other strategies to maximize your deductions.
Mortgage Interest Deduction for Homeowners
As a homeowner, the interest you pay on your mortgage is tax deductible. This can save you thousands of dollars on your taxes each year. To claim the mortgage interest deduction, you’ll need to provide Form 1098 from your mortgage lender, showing the total interest paid for the tax year.
- The maximum deduction for mortgage interest is the interest paid on $750,000 of your mortgage principal. The number is halved for those who file married filing separate.
- You can deduct interest on your main home and a second home. Investment properties do not qualify.
- The mortgage must be for the purpose of purchasing, building, or substantially improving your home. Home equity loans and lines of credit only qualify if the funds were used for home improvements.
Some other things to keep in mind:
- You must itemize deductions to claim the mortgage interest deduction. With the increased standard deduction amounts, itemizing may not make sense for some taxpayers. Compare your total itemized deductions to the standard deduction for your filing status to determine which is greater.
- Points paid on a mortgage to lower your interest rate can also be deducted. Points are deducted over the life of the loan. For example, points on a 30-year mortgage are deducted over 30 years.
- Mortgage insurance premiums may also be tax deductible for some homeowners. Check with your tax advisor to see if you qualify.
- Keep good records of all mortgage-related payments in case of an audit. The IRS may request evidence to support your mortgage interest deduction claims.
The mortgage interest deduction can provide substantial tax savings for homeowners over the life of their mortgage. Be sure you understand all the rules to maximize your deduction and get the full benefit you’re entitled to. Talk to your tax professional if you have any questions about claiming the mortgage interest deduction.
Charitable Contributions: Give and Receive
Giving to charities and nonprofits you support is a win-win. Not only do you help further their mission, but you may be able to deduct a portion of your donations on your taxes. For 2023, the standard deduction has increased, so you’ll need to donate a significant amount to make itemizing your deductions worthwhile.
- Cash or check donations are the simplest to deduct. Be sure to keep records of the amounts and dates for each gift. Most charities will provide written acknowledgement for any donation over $250.
- Donate household goods or clothing in good, working condition. Get a receipt from the charity for the deduction. There are several websites that give you the fair market value of clothing items of your donated goods. Take pictures as additional proof of the items condition.
- Donate a vehicle, boat or aircraft. You can deduct the fair market value of the vehicle up to $500. If the charity sells the vehicle for more, then you can use that figure. The charity will handle the title transfer and provide you paperwork for the deduction.
- Donate stocks, bonds, or mutual funds that have increased in value. You can deduct the full market value and avoid capital gains taxes on the appreciation. Check with your broker and the charity to handle the transfer properly.
- Donate a portion of an IRA distribution. If you’re 70 1/2 or older, you can donate up to $100,000 per year directly from your IRA to a charity. The distribution won’t be included in your taxable income but will count toward your required minimum distribution.
- Keep records of all monetary and noncash contributions in case of an audit. This includes letters or receipts from the charities, photos of donated goods, bank statements, brokerage statements, and vehicle titles.
Donating to charities benefits communities and those in need. With proper record keeping, you can make the most of the tax benefits as well. Every little bit helps, so don’t leave those deductions on the table. Give generously and receive gratefully.
When Should the Standard Deduction Be Used
The Standard Deduction: Simple but Limited
The standard deduction is the flat amount the IRS allows you to deduct from your taxable income. For 2023, the standard deduction is $12,950 for single filers and $25,900 for married couples filing jointly. The standard deduction is simple to claim since you don’t have to itemize your deductions. However, it may result in missing out on some tax savings.
- Use the standard deduction if your itemized deductions like mortgage interest, charitable contributions, and state taxes paid are less than the standard deduction amount.
- The standard deduction is also good if you have a simple tax return without many deductions to claim.
When Itemized Deductions Make Sense
Itemized deductions require you to list and total each deduction on Schedule A, but often result in greater tax savings. Itemize your deductions if:
- You own a home. The mortgage interest and property taxes you pay are often greater than the standard deduction.
- You donate frequently to charities. Your charitable contributions and donations can add up to surpass the standard deduction threshold.
- You have high unreimbursed medical or dental expenses. Although the threshold for deducting medical expenses is high (7.5% of your AGI), if you have sizeable costs, itemizing may be better.
- You pay high state and local income taxes. The state and local tax deduction is capped at $10,000 but may still be greater than the standard deduction for some.
- Run the numbers to determine whether itemizing or claiming the standard deduction will result in the lowest tax bill. Tax software can help determine which approach is better based on your unique tax situation.
The standard deduction provides a simple way to lower your taxable income, but itemized deductions should not be overlooked. Make sure you are taking advantage of all the deductions you are entitled to when filing your 2023 taxes.
So there you have it, a helpful checklist of tax deductions to keep in mind for 2023 and beyond. While the increased standard deduction means fewer people are itemizing, for many taxpayers itemizing still makes sense. Don’t leave money on the table that could be staying in your pocket. Review the list, gather your records, and run the numbers to see which approach saves you the most.
And if you have questions on any of these deductions or your specific tax situation, be sure to check with your tax professional. They can help ensure you claim every deduction you’re entitled to. The tax code may be complicated, but saving money on your taxes doesn’t have to be. Stay organized, do your research, and make the most of these tax deductions. If you haven’t filed your tax return yet, you can do it now for our low flat fee of $25. Your wallet will thank you!
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