Tax Help on the Schedule A for Itemized Tax Deductions
Posted by Brian Rotolo on Fri, Feb 05, 2010
The Schedule A, also known as the long form.
We hear about it from friends and family, especially during tax season. You know, from people who tell you about what you can and can’t write off as a tax deduction on your personal income tax return. We all want the tax help and advice to maximize our tax deductions and reduce our taxes. To help out, I’d like to clear up some of the misconceptions floating around and make it clear to you what items you can deduct. First I’ll give you a basic idea of what the Schedule A Form is and when to use it, and then, of course, some of the common write offs you can take.
Most individuals fill out a Form 1040 when preparing their taxes. On this form, Line 40 is where you can do one of two things: either take a standard tax deduction or put the total tax amount from an attached Schedule A. How do you know which amount to use? The only way to know is to fill out a Schedule A and then compare the total you have there to your standard deduction.
The standard deduction amount varies depending on your filing status and the tax year: in 2008 married filing jointly or qualifying widow(er) it was $10,900, head of household was $8,000, and married filing separately or single filer was $5,450. If the total deduction shown on your Schedule A is less than this amount, you will pay less in taxes if you use your standard deduction. In other words, use the standard deduction!
Generally speaking, those who own homes and pay large mortgages, those who have large medical bills, or those who incur a lot of business expenses not covered by their employer are the typical taxpayers I see who end up using a Schedule A. For many other people, however, the standard deduction is larger and thus should be used. The following are some common deductions and rules you should know as you fill out your Schedule A:
- You can deduct home mortgage loan interest on your main and second home. Only the person who is liable for the loan can make this deduction, even if someone else is actually paying the mortgage. It also must be a home, as only interest on a land purchase isn’t deductible.
- Equity line of credit loan interest is deductible.
- Personal property taxes, like for a home, are deductible if they are charged on a yearly basis and are based only on the value of the personal property.
- Transfer taxes are NOT deductible as real estate taxes.
- Qualified medical expenses in excess of 7.5% of your adjusted gross income (AGI) are deductible. A few specific points I see often: lodging at a hotel during a surgery is deductible at $50 per night per person, the cost of home improvements for medical reasons is deductible minus the value increase in your home, and general health improvements (like a gym membership) are NOT deductible.
- Medical insurance premiums are deductible and are not subject to the 7.5% rule.
- Medicare A (covered under Social Security) is NOT deductible on Schedule A as a medical expense.
- State and local income tax is deductible.
- Qualified business expenses in excess of 2% of your AGI are generally deductible. Meals while on business are only deductible 50%.
- Property losses can be deducted up to the portion not covered by insurance.
Disaster losses in a Presidentially-declared disaster zone are also deductible.
- Charity contributions are deductible, but are limited to a maximum of 50% of your AGI.
There are many specifics when it comes to donations, so I advised you speak with a tax professional before you donate to make sure you document your gift correctly. One note: if you donate a car, you can deduct the smaller of the free market value of the car on the date of transfer or the gross proceeds from the sale of the car by the organization you donated to.
- Margin interest is deductible.
- Gambling losses are deductible only up to the amount of gambling winnings.
- Personal bad debts are not deductible on the Schedule A because they are considered short term capital losses, and as such are limited to $3000 per year. Any balance can be carried forward.