Identify the user's deduction context. Determine:
Filing status: Are they employed (W-2), self-employed, or both?
Itemizing vs. standard: Do they itemize deductions or take the standard deduction? [JURISDICTION: verify current standard deduction amounts and when itemizing makes sense]
Major deduction categories applicable: Based on their situation, identify which categories to track
Current tracking method: Are they starting from scratch or improving an existing system?
Build the deduction category framework. Present the common deduction categories. For each category, provide:
What qualifies [JURISDICTION: verify your country/state eligibility rules]
Documentation required to substantiate the deduction
Whether there is a cap or phase-out [JURISDICTION: verify current limits]
Tracking method recommendation
Category 1: Medical and Health Expenses
Unreimbursed medical expenses above a percentage of adjusted gross income [JURISDICTION: verify the AGI threshold percentage]
Documentation: Receipts, insurance Explanation of Benefits (EOB), pharmacy records
Track: Date, provider, description, amount paid, insurance reimbursement received
Category 2: Charitable Contributions
Cash donations to qualified organizations
Non-cash donations (clothing, goods) at fair market value
Documentation: Receipts, acknowledgment letters for donations above threshold [JURISDICTION: verify receipt requirements and limits]
Track: Date, organization, type (cash/goods), amount or estimated value
Category 3: State and Local Taxes (SALT)
State income taxes or sales taxes paid
Local property taxes
[JURISDICTION: verify deductibility limits and caps on SALT deductions]
Documentation: Tax returns, property tax bills, pay stubs showing state tax withheld
Category 4: Mortgage Interest
Interest paid on a qualifying mortgage [JURISDICTION: verify loan amount limits for deductibility]
Points paid on a mortgage origination
Documentation: Annual mortgage interest statement from lender
Track: Monthly payment breakdown showing interest portion
Category 5: Education Expenses
Tuition and fees [JURISDICTION: verify which education expenses qualify as deductions vs. credits]
Student loan interest [JURISDICTION: verify deduction limits and income phase-outs]
Documentation: Tuition statements, student loan interest statements
Category 6: Business and Self-Employment Expenses (if applicable)
Business supplies, equipment, software
Professional development and industry memberships
Business travel, meals (at deductible percentage) [JURISDICTION: verify deductible percentages]
Home office expenses [JURISDICTION: verify home office qualification rules]
Documentation: Receipts, mileage logs, home office measurements
Category 7: Investment-Related Deductions
Investment management fees [JURISDICTION: verify if currently deductible]
Tax preparation fees [JURISDICTION: verify if currently deductible]
Documentation: Fee statements, invoices from tax professionals
Category 8: Job-Related Expenses (if applicable)
Unreimbursed employee expenses [JURISDICTION: verify if currently deductible -- rules vary significantly]
Professional licenses and certifications
Union dues
Documentation: Receipts, employer non-reimbursement documentation
Create the tracking template. For each applicable category, build a tracking spreadsheet structure:
Date of expense
Category and subcategory
Vendor or payee
Description of expense
Amount
Documentation status (receipt collected: yes/no)
Notes (reimbursement status, special circumstances)
Set up the documentation system. Advise on organizing supporting documents:
Digital filing: One folder per category, named by year
Receipt capture: Photograph or scan receipts immediately (paper fades)
Monthly reconciliation: Review tracked expenses against bank/credit card statements
Annual summary: Total by category before filing
Establish a review schedule. Build a recurring process:
Weekly: Log new expenses, capture receipts
Monthly: Reconcile against statements, verify documentation completeness
Quarterly: Review category totals, identify missing documentation
Year-end: Final reconciliation, prepare totals for filing
Present the itemization threshold analysis. Help the user understand whether tracking matters for their situation:
Compare their expected total deductions against the standard deduction [JURISDICTION: verify current standard deduction for their filing status]
Note that tracking is valuable even if they take the standard deduction -- they may cross the itemization threshold unexpectedly
Self-employment deductions are separate from the itemize vs. standard decision