Taxes: What Can Be Included in Itemized Deductions
What can be included in itemized deductions? Girl, you may be asking yourself this if you are scrambling to file your taxes. Even if you have a high paying job, we’re guessing you don’t want to pay more taxes than you should.
Itemized deductions are specific expenses that taxpayers can report on their tax returns to reduce their taxable income, potentially leading to significant tax savings.
Understanding “what can be included in itemized deductions” is essential for effective tax planning. Does Aunt Tina still owe you money from when you covered her? You may not have known that you can deduct that. Yep, that comes in under the “money owed” category.
Here’s some other deductible expenses you may not have known you were able to deduct; things like canceled debt on homes, donations, capital losses, gambling losses, and yep, money owed.
1. Canceled Debt on Homes: What Can Be Included in Itemized Deductions
When a lender forgives or cancels debt related to your home, it may be considered taxable income. However, under certain conditions, this canceled debt can be excluded from income.
For instance, the cancellation of qualified principal residence indebtedness is excludable from income if it meets specific criteria. According to the IRS, this exclusion applies to debt discharged before January 1, 2026, or subject to an arrangement entered into and evidenced in writing before that date.
To claim this exclusion, taxpayers must file Form 982, “Reduction of Tax Attributes Due to Discharge of Indebtedness,” with their tax return.
2. Charitable Donations: What Can Be Included in Itemized Deductions
Donations made to qualified charitable organizations are deductible for taxpayers who itemize.
This includes cash contributions as well as donations of goods in good condition.
To substantiate these deductions, it’s important to keep records such as receipts or acknowledgment letters from the charities. The IRS emphasizes the necessity of maintaining proof for all charitable donations.
3. Capital Losses: What Can Be Included in Itemized Deductions
Capital losses occur when you sell investment property, like stocks or bonds, for less than your purchase price. These losses can offset capital gains, and if your capital losses exceed your capital gains, you can deduct the difference on your tax return, up to an annual limit.
Any unused capital losses can be carried over to future years. Proper documentation of all transactions is crucial to substantiate these deductions.
4. Gambling Losses: What Can Be Included in Itemized Deductions
Gambling losses are deductible only to the extent of gambling winnings and can be claimed if you itemize deductions. This includes the actual cost of wagers plus expenses incurred in connection with the gambling activity, such as travel to and from a casino. It’s essential to report the full amount of your gambling winnings as income and claim your losses separately. The IRS advises keeping an accurate diary or similar record of your winnings and losses to substantiate these deductions.
5. Money Owed (Canceled Debt): What Can Be Included in Itemized Deductions
Generally, if a debt you owe is canceled or forgiven, the amount canceled is considered taxable income. However, there are exceptions and exclusions, such as debts discharged in bankruptcy or to the extent that you are insolvent.
The IRS provides detailed information on these exceptions and the necessary steps to report canceled debt.
6. Medical Expenses
Did you know you can deduct unreimbursed medical and dental expenses that exceed 7.5% of your adjusted gross income (AGI)? This includes:
- Prescription medications and insulin.
- Medical equipment like wheelchairs and crutches.
- Travel expenses for medical care, such as mileage or public transportation fares.
Make sure to keep detailed records and receipts for all eligible expenses.
7. Educator Expenses
Teachers and educators often dip into their own pockets to provide supplies for their classrooms. Eligible K-12 educators can deduct up to $300 annually for out-of-pocket classroom expenses. This includes costs for books, supplies, and even professional development courses.
8. State Sales Tax
If you live in a state without an income tax, you can deduct state sales tax instead. Even in states with income tax, this deduction may be more beneficial if you made significant purchases, like a car or home improvement materials. The IRS provides tables to estimate your deduction, but you should also keep receipts for large purchases.
9. Moving Expenses for Active-Duty Military
While the moving expense deduction is no longer available to most taxpayers, it remains for active-duty military members moving under orders. This includes costs for transporting household goods and travel expenses for you and your family.
10. Student Loan Interest Paid by Parents
If your parents pay your student loans, you can still claim the student loan interest deduction of up to $2,500 annually. The IRS considers this money as given to the student, who then pays the lender, making the deduction available to the student.
11. Job Search Expenses
Looking for a new job in your current field? You may be able to deduct costs like:
- Travel expenses for interviews.
- Resume preparation and mailing costs.
- Employment agency fees.
These expenses must exceed 2% of your AGI to be deductible.
12. Home Office Deduction
Self-employed individuals who use part of their home exclusively for business purposes can claim the home office deduction. This includes:
- A portion of rent or mortgage interest.
- Utilities like electricity and internet.
- Maintenance and repairs for the office space.
13. Energy-Efficient Home Improvements
Making your home more energy-efficient can yield tax credits. Installing solar panels, energy-efficient windows, or heating systems might qualify for credits under the Residential Energy Efficient Property Credit.
14. Child and Dependent Care Credit
If you pay for child care or care for a dependent while you work or look for work, you might be eligible for a credit. The credit applies to expenses for daycares, babysitters, and even summer camps (not overnight).
15. Military Reservists Travel Expenses
Reservists traveling more than 100 miles away for duty can deduct unreimbursed travel expenses. This includes lodging, meals, and mileage.
What Now?
Tax deductions are a powerful way to reduce your taxable income, but many go unnoticed. By staying informed and keeping meticulous records, you can ensure you’re not leaving any money on the table. If you’re unsure about your eligibility for these deductions, consulting a tax professional can help you navigate the complexities of the tax code and maximize your return.
For personalized advice, consider consulting a tax professional or referring to IRS publications related to itemized deductions.
