Itemized deducti-what? For many ears unfamiliar to taxes, it may sound like word spaghetti. In reality, the concept is simpler than assumed. Basically, itemized deductions are certain expenses that the IRS have allowed to be “deductible” from an individual or small business’s “adjusted gross income” (AGI). AGI is a number calculated from “adjustments” made to your gross income (the income you have prior to any calculations). AGI is used to calculate how much you owe in taxes, so using itemized deductions to lower that AGI can potentially lower your taxes as an individual or small business owner.
Standard versus Itemized
The IRS allows individuals to claim either the standard OR itemized deduction. The standard deduction is something EVERYONE gets across the board as part of their tax formula. In order to claim itemized deductions, the total amount of itemized deductions must be more than the standard deduction. So gathering lots of itemized deductions can mean you’ll potentially get MORE than what you would’ve gotten with the standard deduction.
Different kinds of Itemized Deductions
Schedule A breaks down which expenses can be itemized deductions but there are a few notable ones worth highlighting:
- Certain kinds of medical expenses (e.g. doctor’s visits)
- Interest paid on home mortgages
- Charitable donations
- Business related expenses
With each itemized deduction category, certain calculations must be undertaken to be able to properly claim the expenses as itemized deductions. Self-employed and small business owners can especially utilize itemized deductions to their advantage for taxes.
Small businesses (and their owners) usually require some planning to effectively utilize itemized deductions for their taxes. It requires proper records and filings to claim. As a firm adept at assisting small to mid-sized firms, MiklosCPA can certainly help your business claim those itemized deductions. Schedule a call if you want to learn more about our services. Also, follow our social media pages for more “good to know” tax articles like this one, and for future articles.