Itemized Deductions

Can I Itemize Deductions?   The IRS allows certain expenses you incur to be deducted from your gross income.  In order to itemize, you must have more itemized deductions than the allowed standard deduction IRS allows every taxpayer.  For 2011,  the standard deduction for singles is $5,800, Head of Household is $8,500, and Married/Joint is $11,600.  Your itemized deductions must total more than the standard deduction amounts to be able to save more tax dollars.

What is deductible? 

Medical Expenses.  This is a tough one to itemize because you must subtract 7.5% of your gross income from all medical expenses and what's left over is deductible. 

What types of expenses count for a deduction?   All out-of-pocket expenses and co-pays (not reimbursed by a flexible spending account) for:

1.  Prescription drugs 

2.  Health Insurance premiums if this isn't taken out of your check before taxes (counts if you pay tax on the premiums).

3.  Self-Employed Health Insurance.  (All premiums are deductible).

4.  Medicare, Part B insurance from Social Security.

5.  Mileage to and from doctors, dentists, hospitals, clinics, etc.  For 2011, you need to provide me your mileage for the first six months and the last six months of the tax year.

6.  Glasses, hearing aids, wheelchairs, other needed medical appliances.

TAX TIP!  Flexible Medical Spending Accounts are a great way to use pre-tax dollars to pay out-of-pocket expenses.  This is a way you can beat the 7.5% income exclusion.  You sign up for a specific amount during the open season (usually November/December of the prior year).  As you have medical out-of-pocket expenses, the money will come from your FSA to reimburse you.  The amount you determine is not taxed with your wages.  These are 'use it or lose it' types of accounts so you need to ensure you will be able to use everything you designate in your account for medical purposes. 

If you have a specific question on the deductibility of an item, please email me.

Certain Taxes

1.  You may deduct either the table amount for sales taxes, plus tax you pay on a motor vehicle or your state income taxes that are withheld on your W-2, whichever is greater.  You can't deduct both.

2.  Real estate taxes you pay on your principle home, second home, and land.  There is no limit for the deduction on how much real estate tax you pay.

3.  Personal Property taxes.  (you can't deduct age-based fees on your vehicles - Utah, Idaho and other states)

Mortgage Interest

1.  Interest you pay on your principle residence and second home mortgage is fully deductible.  You can substitute a trailer or boat as a second home and deduct the interest paid on the loan as long as the trailer or boat has a kitchen, toilet and bed.  You are limited to a principle and second home deduction.  If you own a third, you cannot claim the interest deduction.

2.  If you entered into a mortgage contract after 2006, your mortgage insurance premiums are deductible.  The lender will show the amount you can deduct on your 1098 form.

3.  Points you paid to purchase a principle residence are fully deductible in the year you take out the mortgage.  If you refinanced and paid loan origination fees or discount points, the amount is deductible, but it must be pro-rated over the term of the loan (usually 30 years) unless you refinanced, took money out of the new loan, and used it for upgrading your home.  The year you pay off your mortgage or refinance again, the remaining amount of points is fully deductible.

Gifts to Charity

1.  All cash and non-cash (items to Salvation Army or DI) contributions to charity are deductible.  The charity must be a charitable, educational, or philanthropic organization recognized and approved by the IRS.  Money given to friends and family is not deductible.  You must have a receipt (cancelled check or statement proof) for all cash contributions to take a deduction.  If you give a single cash or non-cash contribution of $250 or more, you must get a receipt showing you didn't receive any benefit from the organization to take a deduction.

2.  Mileage you drive for charitable purposes is deductible.  Taking the scouts to camp, church jobs, volunteer work for non-profit organizations is deductible at 14 cents per mile.

3.  You can still donate vehicles to the Lung Association and Kidney Foundation, but if you expect to take more than a $500 deduction, you must show proof that the vehicle was worth more with an appraisal.

Casualty or Theft Losses.  This is another area that is hard to get a deduction.  You must have more than 10% of your gross income as a loss from the casualty or theft, plus $500.  You must subtract any insurance payment you received from the total theft or casualty.

Job Expenses and other Miscellaneous Deductions (must subtract 2% of your gross income)

1.  If you have expenses, necessary to carry out your job, but your employer does not reimburse you, you may be able to take a deduction for them.  Mileage, meals on overnight trips, and other expenses are deductible.  These expenses are subject to subtracting 2% of your gross income as a miscellaneous deduction. 

2.  Education expenses are deductible for improving yourself in your current job.  You cannot deduct education expenses for preparing to qualify for a new job.  There are several other types of education credits for college or trade school tuition that you may qualify for.

3.  Tax preparation fees

4.  Job hunting expenses

5.  Uniforms and clothing that you cannot wear anywhere but on your job, like overalls, steel-toed shoes, etc.

6.  Investment expenses and other expenses.  Please ask me about your specific expenses.