Itemized Deductions Flashcards
Itemized deduction
- below the line deduction (AGI)
vs. adjustment - above the line deduction
- Itemized deduction Schedule A personal .................................... Schedule C - business Schedule E - rental
Standard deduction
1040 EZ
Freebie
MFJ - both use standard or itemized
The additional standard deduction for age 65 or older And/ OR blind
One qualified taxpayer
Unmarried
65 or blind $1650
Both 65 and blind $3300
Married
65 or blind $1300
Both 65 and blind $2600
Two qualified taxpayer
Each 65 or blind 2600
Both 65 and blind 5200
Standard deduction: if dependent of another
e.g your children
greater of
$1,100 OR
earned income + $350
Itemized deduction
- Medical expenses
- State, local and foreign taxes
Medical expenses
- payment on behalf of: taxpayer, spouse, dependents who received more than half of his or her support from the filling taxpayer
” Mom is okay, even if she has taxable income”
………………………………………………
- timing of deduction:
paid ( cash or check)
charged to credit card
cash basis ( incurred and paid)
…………………………………………………….
Calculation
Qualified medical expenses (Insurance reimbursement) ------------------------------------------- Qualified medical expenses (7.5% / 10% of AGI) -------------------------------------- Deductible medical expenses
Type of deducible & non deductible medical expenses
Allowed
- medicine and prescribed drugs
- doctor
- medical and accident insurance
- medically necessary surgery
- physically disabled cost (deduct/do not depreciate)
Not allowed
- life insurance => financial insurance
- cosmetic surgery
- capital expenditure ( up to increase in the fair market value (FMV) of the property because of the expenditure)
- health club
- personal hygiene
State, local and foreign taxes: Not federal taxes
- real estate, income, property, sales
(1) real estate taxes
- legally obligated
- prorate taxes
- taxes paid under protest are deductible, subsequent recovery is included in gross income
- NOT street, were, or sidewalk. Not special assessment
- Escrow deductible when paid to the taxing authority (by bank)
………………………………………………………..
(2) Personal Property taxes
e. g. Vehicles, boats
………………………………………………..
(3) Income taxes
- estimates taxes
- taxes withheld
- assessment for a prior year
Cash basis
- deduct in year paid
not year applied
Refunds are included in gross income ( if Itemized deductions)
…………………………………………
(4) Sales tax
Elect to either
State and local income taxes OR
state and local general sales taxes
…………………………………………….
Nondeductible taxes ( for itemized deduction)
FIB
F: Federal
I: Inheritance
B: Business ( on Schedule C) and rental property taxes ( on Schedule E)
Interest Expenses
HIPPE
H- Home Mortgage Interest
I - Investment Interest Expense
P - Personal (Consumer) Interest - Not dedcutibe
P - Prepaid Interest ( deduct when both incurred & paid)
E - Educations loan ( Adjustment / NOT Itemized Dedcution)
(1) Home Mortgage Interest
- Interest up to $750k
- Orginal acquisition debt or a home equity loan
-1st and 2nd home
- Point related to debt on home - deduct immediately
point for refinancing must be amortized over the period of the loan
(2) Investment Interest Expense
- like gambling loss rule
- limited to net taxable investment income
No “negative” amount allowed as a tax deduction
……….
Include as Net Taxable investment income
- interest, dividends, short-term capital gains, royalties, net long term capital gains
Disallowed expenses: carry forward
- excess of investment interest paid over the “allowed; investment interest deducted can be carried forward indefinitely.
3) personal interest
- a personal note
- life insurance loans
- bank credit card, or other revolving charge ac
- purchase of personal property ( autos, televisions, clothes)
- interest on federal, state, local tax underpayments
- interest on home equity not used to improve home
(ALL NOT ALLOWED AS AN ITEMIZED DEDUCTION)
Charitable Contributions
Gifts( e.g needy family) and Political contribution is not Charity
amount of deduction
-Cash &
Ordinary income property ( lesser of FMV or cost)
-FMV property (doesn’t have to pick appreciation)
with AGI limit
Public Charities
- Cash 60% of AGI
- Ordinary income property 50% of AGI
- long term capital gain property 30% of AGI
Private Operating Foundations
- Cash 60% of AGI
- Ordinary income property 50% of AGI
- long term capital gain property 30% of AGI
Private non-operating foundations
Cash 30%of AGI
- Ordinary income property 30% of AGI
- long term capital gain property 20% of AGI
Carryover of Excess charitable contributions ( Five Years)
Consideration received for contribution
only deduct “excess” paid for item
cash/check when paid
credit card when charged
contribution of services
can not deduct the free services
casualty losses
only deductible if sustained in a presidentially declared disaster area
Amount of loss
Lesser of : Lost cost/adjusted basis OR Decreased FMV (Insurance recovery) ----------------------------------- Taxpayers loss (100) ------------------------ eligible loss (10% of AGI) --------------------------- Deductible loss
Misc Itemized deduction ( 2% of AGI Floor)
suspended 2018-2025
