To reduce your tax bill you must either lower your income subject to tax or increase your allowable deductions. There are many ways to lower your taxable income. For example, you can take a pay cut (not recommended), contribute to a retirement plan, or claim itemized deductions. When you lower your taxable income you lower your tax bill. Depending upon your tax bracket, you can save from 10 to 35 cents for every dollar that you decrease your taxable income by claiming itemized deductions.
Medical expenses include quite a few of the expenses that you pay out-of-pocket to get medical care. However, for medical expenses to be deductible, they need to add up to more than 7.5% of your adjusted gross income (AGI). Additionally, the expense cannot be reimbursed in any manner including by an insurance company. To learn more, see Medical and Dental Expenses.
You’re allowed a deduction for either, but not both of these:
State and local income taxes
State and local sales taxes
You must take the deduction in the year that you paid the taxes. To learn more, see State and Local Taxes.
You can deduct the state, local, and foreign real estate taxes that you pay on your home, condominium, or other property if the tax is levied for the general public welfare, is based on the assessed value of the property, and is a uniform tax against all property in the jurisdiction of the taxing authority. You can also deduct the tax that you pay on personal property, such as your car. To be deductible, a personal property tax must be ad valorem meaning it is based upon the value of the item, it is imposed annually, and is imposed on the personal property located in the US. To learn more, see Real Estate and Personal Property Taxes.
You can take qualified mortgage interest as a deduction on both your main home and a second home if you itemize deductions on Schedule A. In addition, for the loan interest to be deductible, you must be legally liable for repayment of the loan.
You can deduct the interest on the mortgage that you pay to the bank or mortgage company on both your main home and a second home. You can also deduct interest that you pay to an individual, such as the seller of the home, if they financed the sale. As long as the loan is secured by your main home or a second home, the interest is deductible. To learn more, see Interest on Home Mortgages.
When you borrow money to have money to invest, the interest that you pay is deductible. However, the amount of investment interest that you can deduct can’t be more than the amount of investment income that you report. To learn more, see Investment Interest Paid.
Some deductions, known as miscellaneous deductions, are subject to a 2% limit. This means that they must add up to more than 2% of your adjusted gross income (AGI) before you can deduct them. To learn more, see Deductions Subject to the 2% Limit.
You can deduct money and non-cash donations that you make to qualified organizations. Money donations are donations that you make using cash, a check, a credit card, payroll deduction, or automatic withdrawals from your bank account. Non-cash donations are donations of some types of goods, such as clothing, toys, household items, or even a car. In addition, you can also deduct mileage that you drive if it's directly related to charitable work. To learn more, see Charitable Donations. To learn more, see Charitable Donations.
There are amounts that you enter on Schedule A that don’t fall under any of the categories listed above. These are items listed as miscellaneous expenses that aren’t subject to the 2% limit. These expenses include Gambling losses. You’re limited to the amount of gambling winnings that you had. For example, if your winnings totaled $100, then you can deduct up to $100 in losses.