The number one reason for taking your tax return to a professional is to increase your itemized deductions. All taxpayers are allowed a standard deduction. Single filers get to subtract an automatic $5,800 from their 2011 income and married joint filers get to cut twice as much, $11,600, from their taxable income. But a savvy tax preparer, with the help of ample documentation of expenses, can shrink your tax burden even further.
This is why they tell you to keep your receipts. The biggest deductions often come in the form of business expenses. The qualifications for a business expense are flexible enough that a creative accountant can pile up some serious deductions. The same is true for self-employed folks. A home office can be a fertile source of deductions, from the depreciation of office equipment to the Internet service through which you send business emails. But everyone can deduct medical expenses, childcare expenses, and certainly charitable contributions.
Here's a partial list of all of the expenses that qualify for itemized deductions. You will need receipts or other proof to claim each deduction:
- Self-employment expenses (home office, gas mileage, equipment, etc.)
- Business expenses (travel, gas mileage, client meals, etc.)
- Education expenses (that directly relate to your job or field)
- Medical expenses
- Charitable contributions (cash and non-cash)
- Mortgage interest
- IRA contributions
- State, local and foreign taxes (income tax, real estate tax, property tax, sales tax and qualified vehicle taxes)
- Union dues
- Job-hunting expenses
- Tax preparation fees from previous year
This list only covers the most common expenses and deductions, but there are other, more unusual situations in which individual taxpayers can claim large deductions. We'll look at a couple of those situations on the next page.