How to Itemize Deductions for Taxes Paid

Properly itemizing deductions for taxes paid can help reduce your income tax liability.

As a way to reduce the amount of your taxable income, the Internal Revenue Service (IRS) allows you to take certain deductions to your total income when you file your taxes. Certain taxes you have already paid are allowable as itemized deductions. Specific deductions are allowed for real estate taxes, personal property taxes, state and local sales taxes, qualified motor vehicle taxes, and state, local and foreign income taxes. If you have paid any of these taxes, you should consider itemizing them on your federal tax return.

Things You'll Need

• List of expenses
• Form 1040
• Schedule A

Instructions

1. Check your standard deduction. It only makes sense for you to itemize your deductions if they exceed the amount of your standard deduction, which was $5,700 for single filers in 2010 ($11,400 for married filing jointly).

2. Collect evidence of all of your taxes paid. You can find state and local income taxes which have been withheld from your income on your W-2. You may receive a Form 1098 outlining your home mortgage interest payments, but evidence of other deductible taxes, such as motor vehicle taxes, must come from your own records or from bank statements.

3. Read and understand the instructions for Schedule A, "Itemized Deductions." The IRS instructions for Schedule A are thorough and fully explain the government's definition of each allowable itemized deduction. If you are at all unsure of whether your taxes paid constitute an allowable deduction, the IRS instructions are the final defining word.

4. Complete Schedule A. Enter your state and local taxes paid on line 5, and real estate taxes paid on line 6. New motor vehicle taxes, if applicable, should appear on line 7, but only after completing the worksheet on the back of Schedule A. Other taxes, such as those paid to a foreign government, can be entered on line 8. If you received a Form 1098 listing your home mortgage interest, enter that amount on line 10. If you did not, enter your home mortgage interest amount on line 11.

5. Transfer the total allowable itemized deductions to your Form 1040. When you complete your Schedule A, the amount on line 29 will be your total itemized deductions. Transfer this amount to line 40a of your Form 1040.

References

• IRS Tax Topic 503: Deductible Taxes
• IRS: Instructions for Schedule A
• IRS: Schedule A (Form 1040)