Itemized Deductions 101

Hi, Dan Bosler here. I am an accountant from Fenton, Michigan, about ten miles south of Flint, Michigan. I am an Enrolled Agent, and Enrolled Agents are people licensed by the Department of Treasury to help people deal with tax problems. Our company name is Renie Kate Accounting, and we focus on bookkeeping, payroll, tax preparation, and tax representation in the Flint and Ann Arbor areas.

In this article I will give you some basic instructions about itemized deductions.

What are itemized deductions?

Your tax return gives you an option to choose a standard deduction of a fixed amount or you may itemize your deductions. Generally speaking you want to choose whichever gives you the biggest reduction in your taxable income. There are exceptions, but most of the time this is the case.

What things are included in itemized deductions? There are 7 areas in which you may be able to itemize deductions:

Medical and dental expenses. Don’t get too excited about this. Unless you are over 65, your total out of pocket medical and dental costs must exceed 10% of your adjusted gross income before you can count a penny of them. If you are over 65, the percentage is 7%. You must have a LOT of medical expenses you actually paid or charged to a credit card to qualify for any deductible amounts here.

Taxes You Paid. Here you would include any state or local income tax paid, either through withholding or directly paid; any real estate taxes paid that was not on rental or business property; personal property taxes, the most common of which is all or part of your license plate fees; and “other taxes”—excise taxes, for example. If you bought or sold a home in 2014, check your closing statement for taxes paid on your behalf.

Interest You Paid. The most common types are interest and points reported by a bank on Form 1098, and interest you paid in a seller-financed agreement, usually referred to as a land contract. In this section you would report any mortgage insurance premiums, and investment interest.

Gifts to Charity. There are two categories of charitable gifts: cash and noncash. Cash gifts include any documented giving by cash, check, or credit card to a recognized charity, including churches, food banks, and other nonprofit organizations. Political contributions are not tax deductible. Sorry.

Examples of noncash gifts to charity are the donation of used items to Goodwill, donations of motor vehicles, land, patents and copyrights. The list is actually quite long.

Casualty and theft losses. If you had a personal loss not covered by insurance in 2014, report it here. Examples are weather damage to your home because of a storm, or a break-in where you had items stolen. Only report unreimbursed losses here.

Job Expenses and Certain Miscellaneous Deductions. The major items reported here are unreimbursed employee expenses, tax preparation fees, legal or accounting fees associated with producing income, trust account fees, your share of the investment expenses of a regulated investment company, certain losses on nonfederally insured deposits in an insolvent or bankrupt financial institution, the convenience fee paid for paying your income tax by credit card, and a couple other things. These are deductible to the extent they exceed 2% of your adjusted gross income.

Other Miscellaneous Deductions. These things are 100% deductible, within limits.

Gambling losses. These are deductible only to the extent of your gambling winnings. In other words, if you won $100, but spent $1000, you can only deduct $100.

Casualty and theft losses from income producing property. Rentals, for example.

Losses from other activities from a partnership found on Form 1065, line 2.

Federal estate tax on income in respect of a decedent.

A deduction for amortizable bond premium

Deduction for repayment of amounts under a claim of right, limited to $3,000.

Certain unrecovered investment in a pension.

Impairment-related work expenses for a disabled person.

These are deductions listed in the instructions for Schedule A Itemized Deductions. There are other deductions listed in Publication 529.

If these deductions add up to more than your standard deduction, then use this number to reduce your taxable income and therefore your tax, increasing a refund or reducing the amount your owe.

Have you prepared your own tax return in the past, but it sounds too complicated for you now? Or you missed things that would have reduced your taxes or increased your refund?

No matter where you are in the country, because of internet communications, I can help you at rates that are half the national average. Feel free to visit my website: www.danbosler.com, to email me at dan@danbosler.com, or to call my cell (734) 358-6314 NOW for assistance. We at Renie Kate will be glad to help you file your tax return accurately and affordably...in Flint, Ann Arbor, or anywhere you may be around the country.

v/Vȃ>^g