Rocket Money helps you get organized for tax season by identifying transactions which might be tax deductible. This information can be used to help you decide whether or not to itemize deductions, and to keep track throughout the year in preparation for filing.
Viewing Tax Deductible Transactions
Transactions with known charitable donations will be flagged as tax deductible in the app. You can also mark any other transaction as tax deductible, such as medical or business expenses. Lastly, with our premium membership you can also set an entire premium category (like business) as tax deductible, or create a custom tax deductible category. To manage custom and premium categories, tap on the "Manage Categories" screen from the settings menu.
To mark any transaction as tax deductible, simply toggle "Is Tax Deductible" from the Transaction details screen 👇
Exporting Tax Deductible Transactions
To export your tax deductible transactions, go to the spending screen. Scroll to the bottom of the screen and tap the box to view your Tax Deductible transactions. From this screen, you can then tap the Export link at the top right 👇
What are tax deductible transactions?
The IRS allows for many different types of transactions to count as deductions towards the tax you pay. The most common tax deductions include:
Mortgage interest payments
Student loan interest
Certain taxes, including sales and property taxes
Tax preparation fees
Unreimbursed employee expenses
Itemized deductions may have caps on the amount that you can deduct, and may also fall subject to certain income restrictions (for example, many deductions phase out for higher income brackets). For more information on these details, consult a tax professional or tax preparation software. You can also learn more the IRS website.
What does it mean to itemize my tax deductions?
When filing your taxes, there are two ways that the IRS lets you report expenses that decrease your taxable income.
The standard deduction, which is a flat-dollar, no-questions-asked reduction to your adjusted gross income.
Itemized deductions, which are specific expenses that the IRS allows to decrease your taxable income.
If you itemize your tax deductions, you decide to report your share of the specific expenses the IRS allows. This method of filing taxes can help decrease your tax bill depending on your circumstances.
What should I know about itemized deductions?
Itemized deductions might add up to more than the standard deduction. The more you can deduct, the less you’ll pay in taxes, which is why some people itemize — the total of their itemized deductions is more than the standard deduction.
There are hundreds of possible deductions. The IRS allows taxpayers to deduct many things, such as medical expenses, mortgage interest, student loan interest and charitable donations. You can even make a deduction for the use of our home as an office!
Some situations make itemizing especially attractive. If you own your home, for example, your itemized deductions for mortgage interest and property taxes may easily exceed the standard deduction, saving you money.
It's important to understand the rules. Some itemized deductions come with a few hurdles. If you have medical expenses, for example, you can only deduct the portion that exceeds 7.5% of your adjusted gross income.
You might have to spend more time on your tax return. If you itemize, you’ll need to set aside extra time when preparing your returns to fill out the longer tax Form 1040 and Schedule A, as well as the supporting schedules that feed into those forms.
You need proof. You need to be able to substantiate your deductions. That means keeping records and being organized. If you normally take the standard deduction and are thinking of itemizing when preparing your return next year, you'll want to start keeping track now.
What should I know about the standard deduction?
The standard deduction is basically a flat-dollar, no-questions-asked reduction in your adjusted gross income. Here are some big reasons people take the standard deduction instead of itemizing on their tax returns.
It's faster. Taking the standard deduction makes the tax-prep process relatively quick and easy, which probably is one reason most taxpayers take the standard deduction instead of itemizing.
It usually gets bigger every year. Congress sets the amount of the standard deduction, and it’s typically adjusted every year for inflation.
Some people get more (or less). The standard deduction is higher for people over 65 or blind, though filing status is still a factor. And if someone can claim you as a dependent, you get a smaller standard deduction.
One note for married people: You can’t take the standard deduction if you’re married but filing separately and your spouse chooses to itemize. You both have to do the same thing — either itemize or take the standard deduction.
How do I know which is right for me?
Run the numbers both ways
If you are using tax software, it’s worth your time to answer all questions about itemized deductions that might apply to you. By keeping track of these transactions throughout the year, you can then use tax software to run your tax return both ways and see which method produces a lower tax bill. If you are working with a tax professional, having the data from the year on deductions that might apply to you will help them to see if itemizing could decrease your tax bill. You can export this data from Rocket money on the Transactions screen.