Posts Tagged ‘Itemized Deductions’

previous post: Communications With The IRS – 101

Qualified Charitable Deduction (QCD)-A Tax Benefit For Senior Americans

Saturday, November 19th, 2022

The exclusive purpose for the information which is provided from this website is to disseminate information, and not to provide tax advice. 

There is a provision in the income tax laws for American taxpayers who are 70 1/2 years old and older.  It’s the “Qualified Charitable Distribution” or QCD.  It works or provides tax benefits for taxpayers who have an annual “Required Minimum Distribution” or “RMD” and make donations to charitable organizations.  This tax benefit became really important with the “Tax Cuts and Jobs Act” that was enacted on December 17, 2017.  The TCJA became effective on January 1, 2018, and if not extended, will expire on December 31, 2025.

Prior to the enactment of the TCJA taxpayers made their charitable donations and entered the data on Schedule A (“Itemized Deductions”) of their individual tax returns, usually a Federal Form 1040, along with medical expenses, state and local taxes, mortgage interest, etc.  Then the taxpayer compared the itemized deductions total to the standard deduction total and used the higher amount.  However, the TCJA substantially increased the standard deduction for all taxpayers wherein, it may no longer be beneficial to use the actual itemized deductions. To illustrate, I’ll provide examples for two different taxpayers, both are “Married Filing Jointly”, have an RMD of $100,000, donate a total of $15,000 for all of their charities.  Their “Standard Deduction” is $25,100.  Their “Taxable Income” is $200,000 without the tax benefit of the QCD.

Taxpayer A– does not use the QCD.  Receives the required $100,000 RMD, records the $15,000 in donations on Schedule A.  However, the total “Itemized Deductions” are less than the “Standard Deduction”  His/Her “Taxable Income” is $200,000.

Taxpayer B-has his/her IRA Custodian send checks directly to each of the charitable organizations.  He/she receives the full benefit of the QCD.  However, his/her “Taxable Income” is now reduced by $15,000 (the QCD) to $185,000.  He/she also used the “Standard Deduction”.

(more…)

Tags: , , , , ,
Posted in Business Owners, Individual Taxpayers, Investment & Retirement | Comments Off on Qualified Charitable Deduction (QCD)-A Tax Benefit For Senior Americans

Should You Use the Standard or Itemized Deduction?

Tuesday, January 11th, 2022

The exclusive purpose for the information which is provided from this website is to disseminate information, and not to provide tax advice. 

There are certain expenses that most taxpayers have every year that qualify as a deduction from your total income on your tax returns.  The resulting calculation becomes an integral component of the tax return that defines your taxable income.  It is the taxable income amount that is used to calculate your state or Federal income taxes.  Additionally, the income tax laws provide a “standard deduction” for taxpayers who do not itemize, or where the taxpayer’s itemized deductions do not meet a certain threshold.  Important – Taxpayers are entitled to use the HIGHER amount in the calculation of their tax liability, their “Itemized Deductions” or the “Standard Deduction”!

(more…)

Tags: , , , ,
Posted in Business Owners, Individual Taxpayers, Investment & Retirement | Comments Off on Should You Use the Standard or Itemized Deduction?

Standard Deduction or Itemized Deductions?

Monday, February 22nd, 2021

The exclusive purpose for the information which is provided from this website is to disseminate information, and not to provide tax advice. 

Tax return deductions reduce the amount of taxable income when filing a Federal or state income tax return. In other words, using these deductions can reduce the amount of taxes that a taxpayer owes.

In most cases, taxpayers have a choice or option of either taking the “standard deduction” or “itemizing” their deductions. The standard deduction may be quicker and easier, but, itemizing your deductions may lower your income taxes more, in some situations. It’s important for all taxpayers to look into which deduction method is best before they file their income tax returns.

New this year
Following tax law changes, cash donations of up to $300 made by December 31, 2020 are deductible without having to itemize when people file a 2020 tax return.

Read more on this post:

Tags: , , ,
Posted in Individual Taxpayers | Comments Off on Standard Deduction or Itemized Deductions?

Deducting Medical and Dental Expenses

Wednesday, February 26th, 2014

The exclusive purpose for the information which is provided from this website is to disseminate information, and not to provide tax advice. 

Deducting Medical and Dental Expenses

 

If you plan to claim a deduction for your medical expenses, there are some new rules this year that may affect your tax return. Here are eight things you should know about the medical and dental expense deduction:

1.   AGI threshold increase.  Starting in 2013, the amount of allowable medical expenses you must exceed before you can claim a deduction is 10 percent of your adjusted gross income. The threshold was 7.5 percent of AGI in prior years.

2.   Temporary exception for age 65.  The AGI threshold is still 7.5 percent of your AGI if you or your spouse is age 65 or older. This exception will apply through Dec. 31, 2016.

3.   You must itemize.  You can only claim your medical and dental expenses if you itemize deductions on your federal tax return. You can’t claim these expenses if you take the standard deduction.

4.   Paid in 2013. You can include only the expenses you paid in 2013. If you paid by check, the day you mailed or delivered the check is usually considered the date of payment.

5.   Costs to include.  You can include most medical or dental costs that you paid for yourself, your spouse and your dependents. Some exceptions and special rules apply. Any costs reimbursed by insurance or other sources don’t qualify for a deduction.

6.   Expenses that qualify.  You can include the costs of diagnosing, treating, easing or preventing disease. The cost of insurance premiums that you pay for policies that cover medical care qualifies, as does the cost of some long-term care insurance. The cost of prescription drugs and insulin also qualify. For more examples of costs you can deduct, see IRS Publication 502, Medical and Dental Expenses.

7.   Travel costs count.  You may be able to claim the cost of travel for medical care. This includes costs such as public transportation, ambulance service, tolls and parking fees. If you use your car, you can deduct either the actual costs or the standard mileage rate for medical travel. The rate is 24 cents per mile for 2013.

8.   No double benefit.  You can’t claim a tax deduction for medical and dental expenses you paid with funds from your Health Savings Accounts or Flexible Spending Arrangements. Amounts paid with funds from those plans are usually tax-free.

Publication 502 is available on IRS.gov or you can order it by calling 800-TAX-FORM (800-829-3676).
Additional IRS Resources:

 

Tags: , , ,
Posted in Business Owners, Individual Taxpayers | Comments Off on Deducting Medical and Dental Expenses

Now Is The Best Time To Begin Preparing Your 2013 Tax Return

Wednesday, April 24th, 2013

The exclusive purpose for the information which is provided from this website is to disseminate information, and not to provide tax advice.

This is the best time of the year to start preparing for your 2013 tax return.  The new 2013 tax laws have already been signed in to law, you already know which  problems that you had in preparing your 2012 tax return, and by starting now you can avoid going through the same agony in 2014.  You should also avoid using the Scarlett O’Hara approach from “Gone With The Wind” – “Tomorrow’s another day!”   You could also think about the old adage – “Bad medicine is best when taken in small doses!”

The United States uses a pay-as-you-go approach for your annual tax liability.  You are expected to have on deposit with the U.S. Treasury one fourth of your annual income tax liability each quarter.  This requirement can be fulfilled using several methods such as payroll withholding, quarterly estimated tax payments, backup withholding etc. 

Organizing your records throughout the year is always important.  Having your tax return records easily accessible after December 31st will diminish your stress and reduce the time required to assemble these important documents.

Perhaps this is the time to begin using a tax professional to assist you in the preparation of your tax returns and to advise you regarding opportunities to reduce your tax liability.  The U.S. Congress has succeeded in passing income tax laws that are more difficult to comprehend and require an extensive degree of technical knowledge.  You should ask the tax preparer for an estimate of the cost for the preparation of your 2012 tax return.  Then divide the estimated cost by the total actual number of  hours which you spent accumulating records, extracting data, and preparing your tax return.    What was your conclusion?

If you will be changing your marital status in 2013, contact a CPA or tax attorney as soon as possible.  The Internal Revenue Service tests your marital (filing) status as of December 31st every year.  This is especially important if you plan to be divorced, marry, or separate.  Your final divorce decree or separation agreement does not supersede the provisions of the income tax laws!  If you are living in a “community property state” this task is even more important.  Additional information can be obtained from IRS Publication 504 (“Divorced or Separated Individuals”) or using this link:  http://www.irs.gov/publications/p504/index.html  (more…)

Tags: , , , ,
Posted in Business Owners, Individual Taxpayers, Investment & Retirement | Comments Off on Now Is The Best Time To Begin Preparing Your 2013 Tax Return

previous post: Important Information on Late Filing and Late Payment Penalties
next post: Internal Revenue Service Warns of New Phone Scam