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What does it mean "I want to maximize deductions and credits" ?

 
4 Replies

What does it mean "I want to maximize deductions and credits" ?

It means that you want to use the most deductions and tax credits to apply against your taxable income. this usually involves itemizing deductions against using the standard deduction and depends on if you have a large number of deductions available.

What does it mean "I want to maximize deductions and credits" ?

And if you are in the Free Edition you have to upgrade to Deluxe (a paid version) to enter itemized deductions.  But your itemized deductions have to be more than the Standard Deduction to get any benefit from them.  And some deductions are limited like taxes paid and medical.

 

For 2022 the standard deduction amounts are:

Single 12,950 + 1,750 for 65 and over or blind (14,700)

HOH 19,400 + 1,750 for 65 and over or blind (21,150)

Joint 25,900 + 1,400 for each 65 and over or blind (27,300/28,700)

Married filing Separate 12,950 + 1,400 for 65 and over or blind (14,350)

nagmis
New Member

What does it mean "I want to maximize deductions and credits" ?

I'm no tax professional, so this is a casual answer:

 

I think it's pretty terrifying to itemize your deductions... and the IRS rules are so intensive, that you really need to spend a lot of time reading the rules and understanding them.    I've tried for several years to itemize my deductions, and in my scenario it just doesn't work out, and the standard deduction is all I get.  

 

What does it mean "I want to maximize deductions and credits" ?

@nagmis There is no need to be "terrified" by itemizing deductions.   But most people -- like yourself-- will usually find that they are better off just taking the standard deduction.  It is difficult to have enough itemized deductions to exceed your standard deduction, so even if you enter itemized deductions, if you do not have enough, then the software will just default to your standard deduction.

 

STANDARD DEDUCTION

Many taxpayers are surprised because their itemized deductions are not having the same effect as they did on past tax returns.  The new higher standard deduction and the elimination of certain deductions, as well as the cap on state and local taxes have had a major impact since the new tax laws went into effect beginning with 2018 returns.

 

Your itemized deductions have to be more than your standard deduction before you will see a change in your tax owed or tax refund.  The deductions you enter do not necessarily count “dollar for dollar;” many of them are subject to meeting  tough thresholds—medical expenses, for example, must meet a threshold that is pretty hard to reach. (Only the amount that is MORE than 7.5% of your AGI counts)   The software program uses all the IRS rules that apply to the expenses you enter, and it tells you if you have enough to use your itemized deductions or if using the standard deduction is more advantageous for you.  Under the new tax laws, some deductions have been capped—there is a $10,000 limit to the itemized deductions for state, local, property and sales taxes.

 

Your standard deduction lowers your taxable income.  It is not a refund.  You will see your standard or itemized deduction amount on line 12 of your 2022 Form 1040.

 

 

 

2022 STANDARD DEDUCTION AMOUNTS

 

SINGLE $12,950  (65 or older + $1750)

 

MARRIED FILING SEPARATELY $12,950  (65 or older + $1750)

 

MARRIED FILING JOINTLY $25,900  (65 or older + $1400 per spouse)

 

HEAD OF HOUSEHOLD  $19,400  (65 or older +$1750)

 

Legally Blind + $1750

 

 

 

If you want to skip entering your itemized deductions you can do that.  Many people will not have enough itemized deductions this year to itemize, and will just be getting their new higher standard deduction.  The thing is, though, that some of those deductions could make a difference on a state return even if they do not affect your federal return.  Information flows from your federal return to your state return, so it might not be a bad idea to go ahead and enter them anyhow.  It cannot hurt you.

 

The following states allow you to itemize deductions on just the state return: Alabama, Arizona, Arkansas, California, Delaware, Hawaii, Idaho, Iowa, Kentucky, Minnesota, Mississippi, Montana, New York, North Carolina, Oregon, and Wisconsin, 

**Disclaimer: Every effort has been made to offer the most correct information possible. The poster disclaims any legal responsibility for the accuracy of the information that is contained in this post.**
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