For most taxpayers, questions about what is deductible far outnumber the questions about what is taxable. Why? Most income is reported to you and the IRS shortly after year-end on standard documents that everyone generally knows and understands—W-2’s, 1099’s and K-1’s. The IRS matches income reported on these documents to income reported on your tax return, so if you report a different amount or leave income off, you’ll likely be notified.
On the other hand, deductions are far more difficult to handle. First, the record-keeping for deductions mostly falls on the taxpayer. While certain deductions are reported on standard IRS forms (such as mortgage interest), other deductions have no standard reporting form and might not be recapped for you at all. Second, while you might only have a couple of sources of income that don’t change much from one year to the next, you could have a far greater variety of itemized deductions, and the record-keeping requirements might be different for all of them.
Over the next several posts, we will summarize the most common tax deductions, including the record-keeping requirements, and we’ll offer tips to help you get the most bang for your hard-earned buck. Keep in mind there are always special circumstances, ifs, ands and exceptions. So, consult with your tax advisor, or research your situation before taking action.
We’ll begin in our next post with a few basics on the standard deduction and itemized deductions.