Home Tax Deductions The Facts on Itemized Tax Deductions

The Facts on Itemized Tax Deductions

The Facts on Itemized Tax Deductions

An itemized
tax deduction is a type of eligible expense that an individual taxpayer has a
incurred and may report on their federal income tax returns so that the amount
of the individual’s taxable income may be reduced. An itemized tax deduction is
an alternative option for a taxpayer to choose, as opposed to the standard
deduction. When filing taxes, a taxpayer may compute the adjusted gross income
and discover the amount of itemized tax deductions, which can be subtracted
from the gross income to calculate the total amount of taxable income. Next,
the taxpayer may use the standard deduction method to compute the amount of
taxable income. Whichever method yields the greater amount of deductions will
generally be the method chosen by the taxpayer when the tax return is filed.

What are Allowed for Itemized Tax Deductions?

There are a number of itemized tax deductions which may be included in a tax
return to reduce the amount of taxable income of an individual:

        
Medical
expenses are eligible to be included in itemized tax deductions, up to a
certain amount. The amount of eligible medical expenses is calculated by
determining 7.5 percent of a taxpayer’s gross adjusted income and subtracting
it from the total medical expenses. Medical expenses which are eligible for
inclusion are:

    Payments to doctors, dentists,
physical therapists, psychologists, health care professionals, etc.;

    Premiums of medical insurance;

    Payments for prescription
medication;

    Travel expenses for transport
to medical facilities for treatment, including mileage;

    Non-deductible medical
expenses, such as health club memberships;

        
Taxes,
both state and local. These include:

    Income taxes;

    Property taxes;

        
Mortgage
interest expense on debt which has been incurred on up to two homes;

        
Investment
interest, up to the amount of income returned from such investments;

        
Charitable Contributions to recipients that are eligible. The
deduction is allowable between 30 to 50 percent of the adjusted gross income,
depending on the recipient. Though goods and money are accepted for itemized
tax deductions, services are not, except for expenses incurred for performing
such services. Charitable contributions eligible for itemized tax deductions
generally are given to:

    Churches, synagogues and other
houses of worship;

    Federal, state, or local
government organizations;

    Fraternal or veteran
organizations;

    Individuals and political
contributions are not included as a tax deductible contribution.

        
Losses
that have been incurred due to theft or casualty to the extent that the losses
exceed 10 percent of a taxpayer’s adjusted gross income.

        
Losses
incurred due to gambling to the extent of the amount of total income created
due to gambling winnings. 


Miscellaneous Itemized Tax Deductions:

Miscellaneous itemized tax deductions differ from typical itemized deductions
because miscellaneous deductions have a 2 percent minimum. This means that a
taxpayer can only deduct miscellaneous itemized deductions that total at least
2 percent of their adjusted gross income. Any deduction not listed in 26 U.S.C.
ยง 67(b) is considered to be a miscellaneous itemized tax deduction. These
usually include:

        
Clothing
and equipment which has been purchased for job-related activities, such as
hardhats and uniforms. Suits and tuxedos are not eligible for deduction;

        
Subscription
memberships to newspapers, magazines and other periodicals for purposes
relating to a job;

        
Union
dues.


Standard Tax Deduction and Itemized Tax
Deduction Comparison:

Not everyone is eligible to choose between itemized tax deduction and standard
tax deduction. Only taxpayers who meet certain requirements may choose the
standard tax deduction method. The taxpayer must be either a citizen of the
United States or a resident alien to be eligible for a standard deduction. If
the taxpayer is a nonresident alien, he or she will not be able to choose the
standard method. When a married couple files their tax returns, if they are
filing separately, if one spouse chooses the itemized tax deduction method, the
other spouse will not be eligible to choose the standard method. Instead the
spouse should either choose itemized tax deduction or claim a “0” for
the calculated total of the standard deduction. In addition, itemized tax
deductions require prior records to be maintained to prove their validity.

When a taxpayer has calculated the total amount of taxable income when using
both the itemized tax deduction and standard tax deduction methods, the two
differing totals should be carefully analyzed. Even if choosing the itemized
tax deduction method yields a more beneficial return for the taxpayer, if the
difference is negligible between the itemized and standard totals, it may be
wiser to choose the standard method. The reason this should be considered is
because the Internal Revenue Service (IRS) may disagree with the itemized total,
and may make changes that reduce the amount of return. A standard deduction
will not be adjusted by the IRS unless a taxpayer’s filing status is changed.

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