Itemizing deductions is a great way to reduce your taxable income and potentially receive or increase a tax refund. All deductions must be documented, so saving receipts for deductible expenses is a must. To avoid clutter, review which everyday expenses are tax-deductible and which are not.
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If your total medical expenses exceed 7.5% of your adjusted gross income (AGI) in one year, you can deduct the amount that exceeds the base percentage. However, you will need to document all of your medical expenses to claim the deduction. Since you might not know until the end of the year if your medical expenses will exceed 7.5% of your AGI, you should keep all related receipts throughout the year, just in case.
Medical expenses include premiums for medical and dental insurance and a wide range of treatments, including chiropractic services, acupuncture, mental health services, weight loss programs, smoking cessation programs, physical therapy, and many more. Qualified expenses can be for yourself, your spouse, and any of your children or dependents, including children you could have claimed as dependents but didn't due to a separation or divorce agreement or that you could have claimed as a dependent except that they made more than $4,300 for tax year 2020.
Childcare expenses can add up fast, but be sure your care provider can also provide a receipt. You might qualify for a credit for the child or dependent care expenses paid to a daycare facility, a day camp, an after-school program, or even a babysitter, as long as the care enabled you (and your spouse, if you’re married) to work or to seek employment. To qualify, both you and your spouse must have earned income, unless your spouse is a full-time student or is disabled. If the childcare is takes place in your own home, some other expenses might qualify, including the cost of a cook, a maid, or housekeeper who provides services for your child or your dependent.
Qualifying dependents include:
- Any child who is under age 13 that you claim as a dependent.
- A disabled dependent or spouse who is mentally or physically unable to care for himself or herself.
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Are you self-employed, either full time or as a side gig? Many of the items or services you pay for to conduct your business may be tax-deductible. These can include supplies and materials, office space, travel, and insurance. If you run your business from home, you might be able to deduct the business portion of certain utilities and expenses. Be sure to save receipts from your business-related purchases as well as phone, internet, and utility bills. You’ll also want to keep your rent or mortgage information.
State and Local Taxes
If you itemize deductions on your federal tax return, you’re allowed to deduct either the state income tax or the state sales tax you paid. Typically, the income tax amount is greater, but if you made a large-ticket purchase—such as a car, RV, boat, or home improvements—the amount of sales tax you paid might exceed the amount of state income tax. If you want to deduct your sales tax, you'll need to save all the receipts that show how much sales tax you paid throughout the year.
When it’s time to put your receipts to work, let TurboTax guide you through preparing and filing your tax return. We’ll ask simple questions about your tax situation and identify all of the tax breaks that you qualify for that can lower your tax bill or possibly put a refund in your pocket.