Itemized Deduction or Standard Deduction
Itemized Deductions – Highlights only
(Refer tax codes and IRS publications for detailed understanding)
The limitation for itemized deductions to be claimed on tax year 2016 returns of individuals begins with income of $259, 400 or more ($311,300 for Married Filing Joint)
- Medical and dental expenses
You can deduct out of pocket expense means to the extent you weren’t reimbursed that exceeds 10% of your Adjusted Gross Income (line 38, Form 1040)
- Insurance premiums for medical and dental expense
- Prescription medicines or insulin.
- Acupuncturists, chiropractors, dentists, eye doctors, medical doctors, occupational therapists, osteopathic doctors, physical therapists, podiatrists, psychiatrists, psychoanalysts (medical care only), and psychologists.
- Medical examinations, X-Ray and laboratory services, insulin treatment, and whirlpool baths your doctor ordered.
- Diagnostic tests such as full-body scan, pregnancy tests or blood sugar test kit.
- Nursing help (including your share of the employment taxes paid). If you paid someone to do both the nursing and housework, you can deduct only the cost of the nursing help.
- Hospital care (including meals and lodging), clinic costs and lab fees.
- Qualified long-term care services
- The supplemental part of Medicare insurance (Medicare B)
- The premium you pay for Medicare Part D insurance.
- A program to stop smoking and for prescription medicines to alleviate nicotine withdrawal.
- A weight-loss program as treatment for specific disease (including obesity) diagnosed by a doctor.
- Medical treatment at a center for drug and alcohol addiction.
- Medical aids such as eyeglasses, contact lenses, hearing aids, braces, crutches, wheelchairs, and guide dogs including the cost of maintaining them.
- Surgery to improve defective vision, such as laser eye surgery or radial keratotomy.
- Lodging expenses (but not meals) while away from home to receive medical care in a hospital or a medical care facility related to a hospital, provided there was no significant element of personal pleasure, recreation, or vacation in the travel. Don’t deduct more than $50 a night for each eligible person.
- Ambulance service and other travel costs to get medical care. If you used your own car, you can claim what you spent for gas and oil to go to and from the place you received the care; or you can claim 23 cents per mile. Add parking and tolls to the amount you claim under either method.
- Cost of breast pumps and supplies that assist lactation.
You cannot deduct cost of the diet food, cosmetic surgery, life insurance or income protection policies, medicare tax, non-prescription drugs, funeral, burial or cremation costs.
- Taxes you paid
- State and local income taxes (do not include penalties and interests)
- State and local general sales taxes – Actual vs. sales tax table
If you receive refund for the actual income or sales tax already deducted on the income tax return, include that as income on Form 1040 in the year of receipt. You cannot deduct federal income tax, excise tax, social security, FUTA, RRTA, customs duties, federal estate and gift taxes etc.
- Real estate taxes – You can take the deduction in the year you actually paid it, not in the year of assessment. Taxes paid to state, local or foreign authority on real estate you own that wasn’t used for business, but only if the taxes are assessed uniformly at a like rate on all real property throughout the community and the proceeds are used for general community or governmental purposes.
- Personal property taxes – State and local personal property taxes paid based on value alone and were imposed on yearly basis. Yearly fee paid for the registration of your car based on value.
- Other taxes – income tax paid to a foreign country ( can be included in Form 1116 too) or U.S. possession
- Interest you paid
- Home mortgage interest – A home mortgage is any loan that is secured by your main home or second home. It includes first and second mortgages, home equity loans, and refinanced mortgages. A home can be a house, condominium, cooperative, mobile home, boat, or similar property. It must provide basic living accommodations including sleeping space, toilet, and cooking facilities. Interest paid on mortgages taken after October 13, 1987 used to buy, build or improve can be deducted only upto $1 million (mortgage balance) if you filing status is MFJ or limited $500,000 MFS (mortgage balance). Interest paid on a HELOC totaled over $100,000 used for paying off credit card bills, buy a car, or pay tuition is not deductible.
- Generally points paid are deducted over the life of the loan.
- You cannot deduct your mortgage insurance premiums if the adjusted gross income is more than $109,000 (2015).
- Investment interest is interest paid on money you borrowed that is allocable to property held for investment
Whether your interest expense is treated as investment interest, personal interest or business interest depends on how and when you used the loan proceeds.
- Gifts to charity
- You can deduct the amount that is more than the value of the benefit. You paid $150 to a charitable organization to attend a fund-raising dinner and the value of the dinner was $50, you can deduct only $100.
- You can deduct a gift of $250 or more only if you have a statement from the charitable organization showing the information and also any value received.
- You must maintain a record of the contribution a bank record such as canceled check or credit card statement or a written record from the charity.
- If you gave more than $500 other than by cash or check (FMV), you must complete and attach Form 8283 and if the total deduction is over $5,000, you may also have to get appraisals of the values of the donated property. Fair market value is what a willing buyer would pay a willing seller when neither has to buy or sell and both aware of the conditions of the sale.
You cash contributions is limited to 30% and capital gain property is limited to 20% of the adjusted gross income. The balance of the contribution can be carried over to next year.
- Casualty and theft losses
You may be able to deduct part or all of each loss caused by theft, vandalism, fire, storm or similar causes; car, boat and other accidents; and corrosive dry wall. You may also deduct money you had in a financial institution but lost because of the insolvency or bankruptcy of the institution. It should be over 10% of the adjusted gross income reduced by the $100 limit in order to get the benefit of deduction.
- Job expenses and certain miscellaneous deductions.
- Total ordinary and necessary job expenses paid for which you weren’t reimbursed. Daily commuting expense is not deductible.
- Tax preparation fees
- Expense you incurred for earning income, but don’t include personal expense.
- Other miscellaneous deductions
- Gambling losses to the extent of winning, Federal estate tax on income in respect of a decedent etc.
A taxpayer can itemize deductions if their total deductions are more than the standard deduction or they didn’t qualify for the standard deduction.
Standard deduction is a dollar amount that reduces your taxable income. It is a benefit that eliminates the need for many taxpayers to itemize actual deductions. If you are 65 or older or blind on the last day of the year and don’t itemize deductions, you are entitled to a higher standard deduction.
2016 Standard Deduction amounts
MFJ/ Qualifying widower- $12,600
Single/MFS – $6,300
Head of household -$9,300
An additional $1,250 for age 65 or over/blind.