Normally you will itemize your deductions only if your total deductions are more than the standard deduction amount. Also, you will itemize if you do not qualify for the standard deduction, for example in case of nonresidents. In 2009 or 2010 the standard deduction for a single or married filing separately is $5,700, and on the joint return the standard deduction is $11,400. Thus if you are a single and are eligible for standard deduction, you will itemize only if your itemized deductions are more than $5,700.
Standard Deduction vs Itemized Deductions.
A 2002 study by the Government Accountability Office found that more than 2 million taxpayers who claimed standard deduction could have lowered their tax bills by itemizing. So before rushing to file your tax without itemizing, you should figure out your total itemized deductions.
If you itemize, you can deduct a part of your medical and dental expenses and un-reimbursed employee business expenses, and amounts you paid for certain taxes, mortgage, charitable contributions, and miscellaneous expenses. You can also deduct certain casualty and theft losses.
If you are married and are filing a separate return, then you can itemize only if your spouse also itemizes the deductions. Also your itemized deductions may be limited if your income in 2009 on Form 1040, line 38 is over $166,800 (over $83,400 if married filing separately). The medical and dental expenses (on line 4), investment interest expense (on line 14), casualty and theft losses (lines 20 and 28) and gambling losses (line 28) are not subject to this overall limit on itemized deductions. You will use Itemized Deductions Worksheet to figure your limit.
Schedule A (Form 1040)
You report your itemized deductions on schedule A (Form 1040) and it is attached to the Form 1040. Then the amount from Schedule A, line 28, is reported on Form 1040, line 40. For a non-resident the schedule A is part of the Form 1040NR.
1. Medical and Dental Expenses
Your medical and dental expenses that you pay for yourself, your spouse and dependents are entered on line 1 of schedule A (Form 1040). The amount on line 1 is your medical expenses after you reduce it by any payments received from insurance or other sources. You can include insurance premiums you paid for medical and dental care. But if you claimed the self-employed health insurance deduction on Form 1040, line 29, you do not include this amount on line 1 of schedule A.
You can deduct the amount of your medical and dental expenses that is more than 7.5% of your adjusted gross income (Form 1040, line 38). That is you must subtract 7.5% (.075) of your adjusted gross income from your medical expenses to figure your medical expense deduction. Your deductible medical expenses are on line 4 of schedule A (Form 1040). Nonresidents do not get medical deduction.
2. Taxes You Paid
You can deduct:
(a) Either state and local income taxes or state and local general sales taxes (on line 5 of Schedule A)*,
*(on your 2010 return you can not take deduct state and local general sales taxes.)
(b) State, local or foreign taxes you paid on real estate that you own (on line 6 of Schedule A), and
(c) State and local personal property taxes you paid, but only it the taxes were on value alone and were imposed on a yearly basis (line 7 of Schedule A).
If you take itemized deduction for the state income tax on line 5 of schedule A, and later on you receive a refund the state, then this refund must be reported as income. For example on your 2008 tax return you claimed itemized deduction for state income tax, and in 2009 you received a refund, then the refund amount must be reported as income on your 2009 tax return. The state will send your Form 1099-G for this refund.
3. Interest You Paid
You can deduct mortgage interest and points reported on Form 1098 on line 10 and if it is not reported on Form 1098 on line 11 of Schedule A.
Generally, home mortgage interest is any interest you pay on a loan secured by your home (main home or a second home). The loan may be a mortgage to buy your home, a second mortgage, a line of credit, or a home equity loan. You can deduct mortgage interest only if you must be legally liable for the loan. You cannot deduct payments you make for someone else if you are not legally liable to make them. Both you and the lender must intend that the loan be repaid. In addition, there must be a true debtor-creditor relationship between you and the lender.
The mortgage must be a secured debt on a qualified home. Your mortgage is a secured debt if you put your home up as collateral to protect the interests of the lender. If you cannot pay the debt, your home can then serve as payment to the lender to satisfy (pay) the debt.
You can also deduct Mortgage insurance premiums with respect to mortgage insurance contracts on line 13 of schedule A. This deduction is available from year 2007 through year 2010. Box 4 of Form 1098 may show the amount of premium you paid in 2008.
4. Unreimbursed Employee Expenses (Job Expenses)
If you have job related expenses that were not reimbursed, it is reported on Form 2106. If your employer reported any amount in box 1 of W2, then it is not reimbursement. (The employee business expense reimbursement under accountable plan are reported in box 12 of W2 with code "L".) The job related expenses appear on line 21. The job related expenses are certain miscellaneous deductions are subject to 2% AGI limit. That is you can deduct only the part of these expenses that exceeds 2% amount on Form 1040, line 38.
The expense must be ordinary and necessary job expense. An expense that is common and accepted in your field of trade is ordinary expense and an expense that is helpful and appropriate for your business is necessary expense. You can deduct your travel, transportation, and entertainment expenses.
Job Search Expenses: You can deduct certain expenses you incurred in looking for a new job in your present occupation (not in a new occupation), even if you do not get a new job. There must not be a substantial break between the ending of your last job and your looking for a new one, or you must not be looking for a job for the first time.
Reimbursement of Per Diem Allowance. You employer may reimburse you a fixed daily amount for your lodging, meal, and incidental expenses when you are away from home on business. Under the accountable plan, you must give proper account for these expenses and you must return any excess reimbursement within a reasonable time.
Car mileage deduction. For your business mileage, you can use standard mileage rate (50.5c per mile form January 1 to June 30, 2008 and 58.5c per mile from July 1 to December 31, 2008) or you can use actual costs (for gas, oil, repairs, maintenance, insurance, etc.) based on business mileage and personal use mileage. You can not deduct commuting miles or miles for personal use.
If the allowances given to you by your employer are properly accounted for and are less than or equal to the federal rate, the allowances will not be included in box 1 of your W2. You do not need to report the allowances you received and the related expenses on your return. However, if your actual expenses are more than your allowance, you can report this on Form 2106 as your job expenses.
If you are self employed, you do not use Form 2106 or 2106-EZ. If you are a sole proprietor, then you use schedule C or C-EZ (Form 1040).
5. Casualty and Theft Losses
A casualty is the damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, or unusual. Examples of casualty are car accidents, earthquakes, floods, Government-ordered demolition or relocation of a home that is unsafe to use because of a disaster, storms, including hurricanes and tornadoes, terrorist attacks, vandalism. A theft is the taking and removing of money or property with criminal intent and by means that are illegal under the laws of the state where it occurred. Examples of theft are blackmail, burglary, embezzlement, extortion, kidnapping for ransom, larceny, robbery.
The theft and casualty losses are figured on Form 4684 and reported on line 20 of Schedule A (Form 1040). You may also be required to file Schedule D (Form 1040), Capital Gains and Losses. The theft and casualty losses are subject to deductions,
1. You must reduce each casualty or theft loss by $500 ($500 rule) (This is for 2009 tax return. In 2008, this amount was $100).
2. You must further reduce the total of all your casualty or theft losses by 10% of your adjusted gross income (10% rule).
For a theft loss proof, you need following records
*When you discovered that your property was missing,
*That your property was stolen,
*That you were the owner of the property,
*Whether a claim for reimbursement exists for which there is a reasonable expectation of recovery.
Insurance and Other Reimbursements. You must subtract the reimbursement when you figure your loss. You do not have a casualty or theft loss to the extent you are reimbursed.
6. Gift to Charity
Only the contributions to qualified organizations or registered 501(c)3 charities are deductible. Your deduction is limited to 50% of your adjusted gross income, and may be limited to 30% or 20% of your adjusted gross income, depending on the type of organization you give it to.
Noncash Contiributions. If you make a noncash contribution and the amount of your deduction is more than $500, you must complete and attach to your tax return Form 8283, Noncash Charitable Contributions. If you deduct more than $500 for a contribution of a motor vehicle, boat, or airplane, you must also attach a statement from the charitable organization to your return. If your total deduction is over $5,000, you also may have to get appraisals of the values of the property. If the donated property is valued at more than $5,000, you must obtain a qualified appraisal. You generally must attach to your tax return an appraisal of any property if your deduction for the property is more than $500,000. See Form 8283 and its instructions for details.
Contributions From Which You Benefit. From the contribution to a qualified organisation, you must deduct the value of benefit your receive.
Foreign Charitable Organizations. If you have income from Canada, Israel or Mexico, as per tax treaties with these countries, you can deduct contribution you make to certain Canadian, Israeli or Mexican charitable organizations.
Personal Expenses or Services. You can not deduct value of time or services and personal, living or family expenses, such as cost of meal you eat while doing services of a qualified organization unless it is necessary for you to stay away from home overnight.
If you are donating any property or household goods, you must read IRS Publication 561, Determining the Value of Donated Property.
7. Gambling Losses
You must include all your gambling winnings in income on Form 1040, line 21. If you itemize your deductions on Schedule A (Form 1040), you can deduct gambling losses you had during the year, but only up to the amount of your winnings. These are shown as Other Miscellaneous Deductions on line 28 of Schedule A (Form 1040).
Your Filing Status
1. Filing Status for Married
2. Head of Household
Exemptions for Dependents
1. Requirements for claiming a dependent
2. Child of separated or divorced parents
1. Filing Requirement for a Dependent
2. 2009 Filing Requirements
1. W2 vs 1099-Misc: Employee vs Independent Contractor
2. Tax Filing by Self Employed Sole Proprietor or Independent Contractor
3. Filing W4 Employee's Withholding Allowance Certificate
Your Foreign Income
1. U.S. Citizen or Resident with Foreign Income
2. Foreign Bank and Financial Accounts
1. Traditional IRA and Roth IRA
2. Elective Deferrals 401(k) Plans
Income Exemptions and Deductions
1. Moving Expenses
2. Itemized deductions
3. Student Loan Interest Deductions
U.S. Gift tax and Inheritance Tax
1. The U.S. Gift Tax
2. Tax on Inheritances
Sale of Your Home
1. Profit from the Sale of Your Home
2. Foreclosure or Repossession of Main Home
What's New for 2009
What's New for 2009
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