J. William Seabrooke CPA P.C.

This is the time of year when most Americans are becoming more actively engaged in the preparation of their individual Federal income tax returns.  While there are not many options available for reporting income, there could be some opportunities to reduce your taxable income (and directly related income taxes) by carefully reviewing the instructions for the completion of Schedule A (Itemized Deductions) for Federal form 1040.  While there are variances from state to state, most states either allow the same deductions as provided by Federal laws or they require various adjustments.  You can obtain specific details for your Federal tax return deductions by reading the instructions for Schedule A  on the IRS website:  http://www.irs.gov/pub/irs-pdf/i1040sca.pdf 

There are seven major categories:  1)  Medical and Dental Expenses, 2) Taxes You Paid,  3) Interest You Paid, 4)  Gifts to Charity, 5) Casualty and Theft Losses, 6) Job Expenses and Miscellaneous Deductions, and 7) Other Miscellaneous Deductions.

You will only realize a tax benefit from those total medical expenses that are greater that 7 1/2% of your total income (Adjusted Gross Income).  There is a deduction for state and local income taxes for those states that do not have a state income tax (i.e. Florida and Texas).  If you have all of your receipts to document your deductions, you have the option to use either the amounts from the IRS tables or the actual total amount from your receipts.  Large ticket (cost) items such as cars, boats, airplanes, recreational vehicles, etc are additions to the IRS tables.  If you own a home, in addition to your mortgage interest don’t forget to deduct any points that were paid (this amount is usually provided on the Form 1098 that you receive from your mortgage company) plus Mortgage Insurance Premiums (PMI) paid for homes purchased after December 31, 2006.  PMI is required if you had less than 20% equity in your home when you purchased or re-financed it. 

If you and your spouse paid expenses jointly and are filing separate tax returns you should review IRS Publication 504 for guidance on the allocation of these expenses.  Additional information on itemizing deductions from the IRS follows: 

Standard or Itemized Deductions 

Most taxpayers have a choice of either taking a standard deduction or itemizing their deductions. If you have a choice, you can use the method that gives you the lowest tax.

Whether to itemize deductions on your tax return depends on how much you spent on certain expenses last year. Money paid for medical care, mortgage interest, taxes, charitable contributions, casualty losses and miscellaneous deductions can reduce your taxes. If the total amount spent on those categories is more than your standard deduction, you can usually benefit by itemizing.

The standard deduction amounts are based on your filing status and are subject to inflation adjustments each year. For 2009, they are:

• $5,700 for Single
• $11,400 for Married Filing Jointly
• $8,350 for Head of Household
• $5,700 for Married Filing Separately
• $11,400 for Qualifying Widow(er)

Some taxpayers have different standard deductions The standard deduction amount depends on your filing status, whether you are 65 or older or blind and whether an exemption can be claimed for you by another taxpayer. If any of these apply, you must use the Standard Deduction Worksheet on the back of Form 1040EZ, or in the 1040A or 1040 instructions. The standard deduction amount also depends on whether you plan to claim the additional standard deduction for state and local real estate taxes or state or local excise tax on a new vehicle, and whether you have a net disaster loss from a federally declared disaster. You must file Schedule L, Standard Deduction for Certain Filers to claim these additional amounts.

Limited itemized deductions Your itemized deductions may be limited if your adjusted gross income is more than $166,800 or $83,400 if you are married filing separately. This limit applies to all itemized deductions except medical and dental expenses, casualty and theft losses of personal use and income producing property, gambling losses and investment interest expenses.

Married Filing Separately When a married couple files separate returns and one spouse itemizes deductions, the other spouse cannot claim the standard deduction and should itemize their deductions.

Some taxpayers are not eligible for the standard deduction They include nonresident aliens, dual-status aliens and individuals who file returns for periods of less than 12 months due to a change in accounting periods.

Forms to use The standard deduction can be taken on Forms 1040, 1040A or 1040EZ.  If you qualify for the higher standard deduction for real estate taxes, new motor vehicle taxes, or a net disaster loss, you must attach Schedule L. To itemize your deductions, use Form 1040, U.S. Individual Income Tax Return, and Schedule A, Itemized Deductions.

These forms and instructions may be downloaded from the IRS.gov Web site or ordered by calling 800-TAX-FORM (800-829-3676).

  

Links:

• Publication 17, Your Federal Income Tax (PDF 2.3MB)
• Schedule A, Itemized Deductions (PDF)