Every year thousands of taxpayers overpay their income taxes because they use the standard deduction when itemizing deductions would be more advantageous. The causes are bad record keeping and simply not knowing or understanding the law. What follows is a basic review of what expenses qualify:
Taxes: State and local income taxes, real estate taxes, and personal property taxes are all deductible. Federal taxes, social security tax, and sales tax are not deductible.
Medical Expenses: You can deduct unreimbursed expenses for you, your spouse, and your dependents to the extent they exceed 7.5% of your adjusted gross income (AGI). This includes expenses for doctors, dentists, hospital care, prescriptions, nursing services, and medical aids. Also included are, insurance premiums, long term care premiums (within limits), and transportation and lodging.
Interest Expense: You can deduct interest paid on your primary residence and one second home. Also included are, first and second mortgages up to $1 million and home equity loans up to $100,000. Points are generally deductible and points incurred to refinance are amortized over the term of the loan. Interest paid on money used to acquire investments are deductible within certain limits.
Contributions: Donations to qualified organizations are deductible to the extent you receive no benefit in return. The organizations include churches, schools, libraries, and qualified charities. You can make donations in cash, check, or credit card. You can also deduct the fair market value of property other than cash. You must keep detailed records for donations of property other than cash, moreover you need a receipt for cash donations of $250 or more. All organizations must be located within the USA.
Casualty and Theft Losses: Losses from a fire, theft, or disaster are deductible within certain limits.
Miscellaneous Deductions: Included are certain unreimbursed employee expenses, investment expenses, gambling losses, and tax planning and tax preparation fees. Most of these expenses are subject to a 2% AGI floor.
To benefit the most, an awareness of the deductions that apply to you and good records are very important. If you have questions, please contact us.
