Itemized Deductions
Can I Itemize Deductions? The IRS allows certain expenses you incur to be deducted from your gross income. To itemize deductions, you must have more deductions than the standard deduction IRS allows every taxpayer. For the current tax year, the standard deduction for singles and those filing separately is $14,600, Head of Household is $21,900, and Married/Joint is $29,200.
What is deductible?
Medical Expenses. This is difficult to have enough expenses to itemize because you must subtract 7.5% of your gross income from all medical expenses and what's left over is deductible.
What types of expenses count as a deduction? All out-of-pocket expenses and co-pays (not reimbursed by a flexible spending account) for:
1. Prescription drugs - medicines that are prescribed by a doctor. Insulin is deductible whether or not prescribed. (no over-the-counter medicines are deductible unless prescribed by a doctor)
2. Health Insurance premiums if they are not taken out of your pay before taxes. Usually, you do not pay income tax on premiums that are deducted from your pay. Other health insurance such as vision and dental insurance are deductible. Insurance that pays if you are in an accident or get cancer, is not deductible. Retirees who pay health insurance can deduct their medical insurance premiums.
3. Self-Employed Health Insurance. (All premiums are deductible).
4. Medicare Part A and/or B insurance paid by Social Security or if you pay the premium.
5. Mileage to and from doctors, dentists, hospitals, clinics, etc. Keep track of miles used.
6. Glasses, hearing aids and batteries, wheelchairs, other needed medical appliances.
TAX TIP! Flexible Medical Spending Accounts are a great way to use pre-tax dollars to pay out-of-pocket expenses. This is a way you can beat the 7.5% income exclusion. You sign up for a specific amount during the open season (usually November/December of the prior year). As you have medical out-of-pocket expenses, the money will come from your FSA to reimburse you. The FSA amount you determine is not taxed with your wages. These are 'use it or lose it' types of accounts so you need to ensure you will be able to use all you designate in your account for medical purposes.
If you have a specific question on the deductibility of an item, please email me.
Certain Taxes
1. Real estate taxes you pay on your principle home, second home, and land. State income tax withheld on your W2 is also deductible.
2. Personal Property taxes. Taxes you pay the Utah DMV are not deductible as the tax is an age-based fe
e. IRS allows a deduction for value-based vehicle property taxes only. Taxes charged by cities on utility bills are not deductible as personal property taxes, but are included in the tax table amount you can claim for sales tax if you don't claim the state income tax deduction.The maximum deduction allowed for taxes is $10,000.
Mortgage Interest
1. Interest you pay on your principle residence and second home mortgage is fully deductible. You can substitute a trailer or boat as a second home and deduct the interest paid on the loan as long as the trailer or boat has a kitchen, toilet and bed. You are limited to a principle and second home deduction. If you own a third, you cannot claim the interest deduction. Mortgage interest is deductible with a mortgage debt up to $750,000 ($375,000 for singles). Any interest over that amount is not deductible. Home equity loans secured after December 15, 2017 are not deductible unless you use the proceeds to improve your principle residence.
2. Points you pay to purchase a principle residence are fully deductible in the year you assume the new mortgage. If you refinanced and pay loan origination fees or discount points, the amount is deductible, but it must be pro-rated over the term of the loan (usually 30 years) unless you refinanced, took money out of the new loan, and used it for upgrading your home. The year you pay off your mortgage or refinance again, the remaining amount of points is fully deductible. Please bring your closing papers with you to your appointment.
Gifts to Charity
1. All cash and non-cash (items to Salvation Army or DI) contributions to charity are deductible. The charity must be a charitable, educational, or philanthropic organization recognized and approved by the IRS. Money given to friends and family or through GoFundMe type crowdfunding is not deductible, as it is a gift and the organization is not approved by the IRS. You must have a receipt (cancelled check or statement proof) for all cash contributions to take a deduction. You can't estimate cash contributions. If you give a single cash or non-cash contribution of $250 or more, you must get a receipt showing you didn't receive any benefit from the organization to take a deduction.
2. Mileage you drive for charitable purposes is deductible. Taking the scouts to camp, church jobs, volunteer work for non-profit organizations is deductible at 14 cents per mile.
3. You can still donate vehicles to the Lung Association and Kidney Foundation, but if you expect to take more than a $500 deduction, you must get an appraisal.
Casualty or Theft Losses are no longer deductible unless in a federally declared disaster area.
Employee Job Expenses and other Miscellaneous Deductions are not currently deductible with the Tax Cuts and Jobs Act.