Some states require tax filers who itemize deductions on their federal tax return to also itemize on their state return. Other states allow a separate choice as to whether to itemize on the state return. Individuals can sometimes reduce their overall income tax by itemizing deductions on their state return and taking the federal standard deduction.
On federal returns, tax filers usually choose to deduct the larger of their standard deduction or their total itemized deductions. However, some states do not recognize itemized deductions and allow only a standard deduction. The tax rules for itemizing are somewhat different for each state that allows itemized deductions.
Standard deduction differences
In some states, the amount of the state standard deduction is smaller than the amount of the federal standard deduction. Because of the difference, it may benefit you to take the larger federal standard deduction and then itemize on your state return. Most tax-preparation software allows your tax preparer to enter all of your potential deductions and compare the different outcomes.
Interest paid on a home mortgage is oftentimes the largest single itemized deduction for a tax filer. If you pay interest on a mortgage, you may already be close to the threshold for itemizing deductions. Even if you end up claiming the standard deduction on both federal and state returns, it is best to gather together the necessary information to attempt to itemize.
Medical threshold differences
The threshold at which medical expenses become deductible is lower on some state returns than on a federal return. Many tax filers who itemize deductions assume that they are unable to include medical costs as a deduction due to the federal threshold. Assuming that they cannot benefit from medical expenses, some tax filers also neglect to keep track of miles driven for medical reasons.
All of the miles driven for doctor visits and to pick up prescriptions are deductible at a specific mileage rate. Some filers forget to maintain a record of medical mileage. Even if itemized deductions are not used on your federal tax return, they may benefit your state tax return.
Once your itemized deductions are entered into tax-preparation software, comparison of the available options requires only a couple of clicks. Your preparer will make note of how each filing option affects your net refund or net balance due, providing you with a clear bottom-line comparison.
Itemized deductions for a federal tax return are entered on IRS Schedule A. Some states provide their own specific form for itemizing state deductions. Contact a tax preparer for further assistance in maximizing your itemized deductions.
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