A Select List of Tax Deductions?

Answer 1

Overview

Individual taxpayers, as opposed to businesses, have two general lists of tax deductions available. The first group consists of deductions that can be taken without regard to meeting the standard deduction and are not listed on Schedule A. The second group consists of those that must be itemized on Schedule A. This second type will not be used if the total does not exceed the standard deduction.

This is only a partial list of the tax deductions available. It represents some of the most commonly used deductions.

Mortgage Deduction

This is an itemized deduction. The taxpayer can deduct mortgage interest, points, and mortgage interest premiums. Some limits may apply to the allowable deduction based on the purchase price of the property, and the expenses must be related to the taxpayer's primary or secondary residence.

IRA Contribution

This is not an itemized deduction. As much as $6,000 is available per person (taxpayer and spouse) when filing jointly, but the IRS applies several tests based on income and circumstance that can reduce the deductible amount.

Charitable Contributions

This is an itemized deduction. Contributions must have been made to an IRS-qualified organization. Donations of cash, property, and out-of-pocket expenses are potentially eligible and must be documented. Limits apply based on adjusted gross income, but donations not deductible in one year can be carried over to the next.

Educational Expenses

This is not an itemized deduction. Qualified student loan interest, tuition, and fees can be deducted, although limits might apply based on the modified adjusted gross income. These deductions should not be confused with education credits. Each program has its own rules, and the taxpayer should calculate his tax liability under both methods to determine which gives the better result.

Medical Expenses

This is an itemized deduction. Allowable medical and dental expenses are described in IRS Publication 502. Only those expenses that exceed 7.5 percent of the taxpayer's adjusted gross income can be deducted. The taxpayer may deduct the expenses paid for herself, her spouse, dependents claimed on her return, a child not claimed on her return, and certain other non-dependents.

State and Local Taxes

This is an itemized deduction. State and local income, sales, personal property, and real estate taxes can all be deducted on the federal tax return.