Misconception about Itemized
on your Tax Return
“Sure, you can deduct that on your tax return.” How many times have you heard that statement before? But can you really?
As taxes are a hot topic in the news and your social gatherings, I hear numerous questions on deductions. What’s allowed? How much can I deduct? To what extent can I deduct? Is my accountant really looking out for me? Yes for this last question (at least I do!).
But let’s focus in on something personal, so personal that it’s on your Form 1040 Schedule A.
On your Form 1040 Individual Tax Return, you either take the standard deduction or itemized deduction that is totaled on your Schedule A. The standard deduction for the 2017 tax year is $6,350 if filing single or $12,700 married filing jointly or $9,350 for head of household.
If your itemized total is more than the standard deduction, then you can take the itemized deduction. Makes sense right?
2018: Standard Deduction is $12,000 for single, $24,000 for married filing jointly and
Now let’s look at the most common deductions taken and misconceptions about them:
Medical expenses include doctor visits, prescriptions, hospital fees, and insurance premiums – expenses that YOU have actually paid. Total these all up and anything ABOVE 10% of your Adjusted Gross Income (AGI) will be allowed as part of Schedule A deduction.
For example: AGI is $50,000 and total medical expenses are $6,000. Your schedule A allowed deduction for medical expenses is $1,000.
2018: Anything above 7.5% of you AGI will be considered for a deduction.
With or without this deduction ALL people should give to charity in one way or another. You can deduct any charitable gifts only if you itemize and may only deduct a maximum of 50% of your Adjusted Gross Income; anything of excess will be carried forward for 5 years.
This is interest paid on your house loan and one other residence and is deductible up to $1 million of debt if you itemize.
2018: New mortgages are only allowed to deduct the interest on debt up to $750,000. No deduction for the interest on home equity loans.
State and Local Property
ALERT – Make all tax payments in 2017! Currently, you can deduct all property taxes, state taxes and other local taxes.
2018: State and local tax total capped at $10,000 – this includes any combination of property, income, and sales tax.
Job Expenses and Miscellaneous Deduction Subject to 2% floor
Various types of expenses that includes unreimbursed employee expenses, tax preparation fees, and hobby expenses that generate income. You can only deduct expense total that exceed 2% of your AGI.
2018: Eliminated till 2025
Remember these are generalized deductions and may or may not apply to you personally. Please reach out to your tax advisor for specific advice.
About Nirali Chokshi, CPA
Nirali is a CPA working at her family’s accounting firm Chokshi Accounting & Tax Services in Orlando, FL. She graduated with her Masters from University of Central Florida in 2009.