Schedule A: Itemizing to Lower Your Taxes
Written by Kristina Lee   


Taxes are complicated and expensive, but there are ways to reduce the amount that you owe to the government. One way is through the deduction you are allowed to take. For individual taxpayers filing federal Form 1040, there are two options: the Standard Deduction, and the Schedule A itemized deduction. Taxpayers usually calculate both (if possible) and take the greater deduction.

The Standard Deduction is the amount non-itemizers may claim on their federal return, based on their status: single, married filing jointly, married filing separately, head of household, or qualifying widow(er). This number is set by the government and rises each year.

Calculate your deduction using the Itemized Tax Deduction form. Qualifying items include:

Medical and Dental Expenses
These expenses, as well as insurance premiums for medical and dental care that you paid, for you, your spouse, children, dependents, are deductible, subject to a 7/5% of Adjusted Gross Income threshold. That is, you can only deduct the expenses that exceed 7/5% of your AGI reported on line 38 of Form 1040.

Taxes You Paid
This does not include federal income and most excise taxes; social security, Medicare, FUTA, RRTA taxes; custom duties, federal estate and gift taxes, certain local and state taxes, veterans benefits, workers' compensation; some parts of Social Security benefits or IRA / pension distributions, etc. However the following do qualify:
  • Income Taxes or General Sales Taxes: State and local income taxes include those withheld from your salary, income taxes paid for a prior year in the current taxable year, current year estimated tax payments, and mandatory contributions to disability, unemployment, or worker’s compensation funds. State and Local General Sales Taxes include actual state and local general sales taxes paid in the current taxable year, with various exclusions. Taxpayers can take the larger of income or general sales taxes.
     
  • Real Estate Taxes: State, local, or foreign taxes on real estate that you own, that was not used for business.
     
  • New Motor Vehicle Taxes: State and local sales and excise taxes that you paid for the purchase of a new motor vehicle.
     
  • Other Taxes: State and local personal property taxes paid, as well as income tax to a foreign country you paid. For example, the license fee part of your DMV registration.
Interest You Paid
  • Home Mortgage Interest: The loan must have been secured by your main or second home (house, condo, cooperative, mobile home, boat), and is applicable to your 1st and 2nd mortgage, home equity loans, and refinanced mortgages. For details, see the Mortgage Interest Tax Deductibility.
     
  • Points not reported on Form 1098: You can only deduct points you paid to borrow money (not for lenders' services) over the life of the loan.
     
  • Qualified Mortgage Insurance Premiums: These premiums are deductible only if the mortgage insurance is provided by the VA, the Federal Housing Administration, or the Rural Housing Service, or private mortgage insurance.
     
  • Investment Interest: Interest paid on money you borrowed that is allocable to property held for investment.
Charitable Contributions
Gifts to religious, charitable, educational, scientific, or literary organizations are deductible. They can be cash, property, or out-of-pocket expenses you paid to do volunteer work.

Casualty and Theft Losses
Part or all of each loss caused by theft, fire, storm, vandalism, etc, as well as boat or car accidents, are deductible. Other deductible losses include those lost from the insolvency or bankruptcy of a financial institution that held your money

Job Expenses and Certain Miscellaneous Deductions
Expenses that exceed the Adjusted Gross Income amount on Form 1040, line 38, are deductible. However, personal legal expenses, political contributions, meal expenses, entertainment expenses, travel for jobs away from home that last more than a year, club dues, commuting expenses, fines and penalties, and expenses of producing tax exempt income are not deductible
  • Unreimbursed Expenses: Ordinary and necessary job expenses that you paid for, but were not reimbursed, are deductible.

  • Tax Preparation Fees: Those paid for the preparation of your tax return and for the electronic filing of the tax return are deductible.
     
  • Other Expenses: These are expenses that you paid to produce taxable income, such as certain legal and accounting fees, clerical help, office rent, losses on insolvent financial institutions, safe deposit box, etc.
     
  • Other Miscellaneous Deductions: Gambling losses, federal estate tax on income in respect of a decedent, amortization of bond premium on bonds, certain unrecovered investments in a pension, etc.
So, as you contemplate buying a home and taking out a mortgage to do so, remember that the home mortgage interest, points, property taxes, and qualified mortgage insurance premiums are all tax deductible.



 
Last Updated on Wednesday, 22 December 2010 05:33