Redrocktaxes's Weblog

Itemize or Standard Deduction? | January 6, 2011

Who Should Itemize?

You are allowed to choose which will benefit you more—itemizing your deductions or taking the standard deduction.  If your itemized deductions do not add up to more than the standard deduction, you will want to take the standard deduction.

The standard deduction amounts for 2010 tax returns are as follows:

            Single                                                                                              $5700

            Married Filing Joint/Qualifying Widow(er)                     $11400

            Head of Household                                                                      $8400

           Married Filing Separately                                                          $5700

65 & over or blind each (MFJ, QW, MFS)                                         $1100

65 & over or blind (Single, HOH)                                                        $1400

 The following are among the more common itemized deductions.  If the total is more than the standard deduction, you will want to itemize.  (Your tax preparer can give you other items or details to maximize your deductions.)

 Medical deductions—subject to the 7.5% floor for the federal return.  All are allowed on the Arizona return.

1. 1. Prescriptions
   2. Payments to Doctors, dentists, acupuncturists, osteopathics, chiropractors, psychologists, etc.
   3. Some expenses you may not have known about:

                                                               i.      Contact lenses and the solutions for them

                                                             ii.      Hearing aids and the necessary batteries

                                                            iii.      Special diet—the costs of the special food above the costs of the normal diet when prescribed by a doctor

                                                           iv.      Laser eye surgery, including LASIK and radial keratotomy

                                                             v.      Insurance premiums, including Medicare Part A & B

                                                           vi.      Medical conferences  related to the chronic illness of the taxpayer, spouse, or dependent (Cannot deduct meals & lodging).

                                                          vii.      Swimming.  Prescribed therapeutic swimming costs including the cost of maintaining a pool at the taxpayer’s residence

                                                        viii.      Weight loss program as a treatment for a specific disease.  If the physician diagnoses obesity, it will qualify.  Foods for the program to not qualify (see above special diet)

                                                           ix.      Insulin and diabetic testing supplies, including blood monitor

                                                             x.      Mileage to and from physician’s office, labs, hospitals, clinics, etc. @ 18 cents per mile

                                                           xi.      Smoking cessation programs and prescribed drugs to alleviate nicotine withdrawal.

 State Income Tax or State/County/City Sales Tax

You have a choice of taking a deduction for your income taxes or the sales tax you paid.

 For most Arizonans income tax will be their choice.  If, however, you have made a major purchase this year, such as a home, boat, car, or RV (See list in Publication 600), you make have a larger deduction with the sales tax. 

The IRS has come up with sales tax tables.  These are found in IRS Publication 600.  They have the state sales tax.  Each locality/city’s sales tax should be added to the state sales tax using the chart provided on page 2 of Publication 600.

 For those who pay estimates, it may be beneficial to use the IRS’s chart one year and pay taxes for both years in the other year.  Discuss this with your preparer.

 Real Estate Taxes.

Although mortgage interest is limited to two properties, all real estate taxes are deductible.

Personal Property Taxes (Also known as DMV or MVD fees)

1.  
   1. Must be based on the value of the vehicle
   2. Must be personal property
   3. Must be charged on an annual basis

Mortgage Interest

1. 1. Can deduct mortgage interest on up to two homes
   2. Indebtedness is limited to $1,100,000 of deductible mortgage interest
   3. Home equity indebtedness is deductible up to $100,000 or the fair market value of the home minus total acquisition indebtedness, whichever is less.
   4. Points are deductible in the year of purchase or over the life of the loan.
   5. Refinance points must be deducted over the life of the loan.
   6. Late charges generally count as mortgage interest

 Investment Interest

Interest paid to purchase investment property (stocks, bonds, real estate) is deductible up to the amount of investment income received.

 Charitable Contributions

1. 1. Money or property given to

                                                               i.      churches, synagogues, temples, mosques, etc.

                                                             ii.      federal, state, or local governments for public purposes only

                                                            iii.      nonprofit schools, hospitals, and volunteer fire companies

                                                           iv.      Salvation Army, Red Cross, Goodwill, CARE, United Way, Boy/Girl Scouts, Boys & Girls Clubs

                                                             v.      War veterans groups

                                                           vi.      You must have a receipt for donations of more than $250 to an individual charity

1.  
   1. Charitable travel @ 14 cents per mile
   2. Out-of-pocket volunteer expenses (scout uniforms for troop leaders)
   3. Nondeductible Contributions include money or property given to

                                                               i.      Civic leagues, social, or sports clubs

                                                             ii.      Labor unions and chambers of commerce

                                                            iii.      Foreign organizations

                                                           iv.      Groups run for personal profit

                                                             v.      Groups whose purpose if lobbying for legislative changes

                                                           vi.      Homeowners associations

                                                          vii.      Individuals

                                                        viii.      Political groups or candidates for public office (Allowed as a deduction in some states)

                                                           ix.      Costs of raffle, bingo, or lottery tickets

                                                             x.      Value of blood given to blood banks

                                                           xi.      Value of time or services provided by the taxpayer

1.  
   1. Noncash Contributions

                                                               i.      You must determine the value of the things donated.  “It’s Deductible”, available on CD, guarantees that the values it lists will be accepted by the IRS.

                                                             ii.      Keep a list of items you are donating and get a receipt at the time of donation

                                                            iii.      Remember the new rules for donating vehicles—you can only deduct the value the charity receives upon sale (See prior handout for more detail.)

                                                           iv.      For items valued at more than $5000, you must have an appraisal.

                                                             v.      For contributions of stock, discuss deduction with your preparer.

1. Casualty/Theft Losses
   1. The loss is the lesser of the adjusted basis (usually the value) before the casualty/theft or the decrease in the fair market value as a result of the casualty or theft minus any insurance reimbursement.
   2. To arrive at the deduction, you must subtract $100 and 10% of your adjusted gross income from the figure above, so most of the time, no deduction is allowed.  These two deductions do not apply to business losses.
2. Miscellaneous Deductions
   1. Gambling losses up to the amount of gambling winnings
   2. Subject to the “2% floor”

                                                               i.      Employee business expenses

1. travel
2. 50% of business meals and entertainment
3. supplies
4. professional books and journals
5. home office deduction (If required by your employer)
6. tools, special shoes, equipment
7. Non-reimbursed mileage @ .55                                                            

 

1.   Hobby expenses to the extent of hobby income

                                                            iii.      Investment expenses

                                                           iv.      IRA, SEP, or SIMPLE fees paid directly

                                                             v.      Job-hunting expenses

                                                           vi.      Job-related education expenses

                                                          vii.      Professional and union dues

                                                        viii.      Safe deposit box

                                                           ix.      Tax preparation and other tax assistance expenses

                                                             x.      Work clothes and uniforms is required and not suitable for street wear.

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