TAXES 2016- Itemized deductions-Good or Not

taxes 2016

TAX SEASONITEMIZED DEDUCTIONS VS STANDARD DEDUCTIONS

Please file your taxes before Monday, April 18, 2016. No one likes to give their money away, but we have no choice. I studied taxes in 2014 and it was a blessing, best $300.00 investment. I learned to itemized as much as possible and to do my own taxes. I don’t put my faith in a stranger, at the end of the day you are responsible for what you submit to the IRS, the tax preparer is not liable for mistakes. So, would you like to know what you sign?  If you have the time, learn about taxes, because it is the biggest expense you have!

Most of my information was taken from http://www.irs.gov , the website has everything you need to know. I will go into detail about every itemized deduction line in schedule A, in simple terms, not the complicated stuff you find in the IRS publications.

Deductions reduce the amount of your taxable income, meaning less takes you have to pay at the end of the year or a bigger return! This week I will be publishing a post about standard deductions, so stay tune. The itemized deductions are for people that have big expenses, and are bigger than the standard deductions. For example:

taxes 2016 (1)

Now, lets go into detail about each category on schedule A :

  1. Medical and dental expenses-Question to ask yourself, did you have a big out of pocket expense?  You may deduct only the amount of your total medical expenses that exceed 10% of your adjusted gross income (this is the amount on line 1 of your W2) or 7.5% if you or your spouse is 65 or older. You may not deduct funeral or burial expenses, over-the-counter medicines (i.e., medicines or drugs that aren’t required to be prescribed), toothpaste, toiletries, cosmetics, a trip or program for the general improvement of your health, or most cosmetic surgery. You may not deduct amounts paid for nicotine gum and nicotine patches that don’t require a prescription.
  2. Deductible Taxes. There are four:
    • State, local, and foreign income taxes-
      • Any estimated taxes you paid to state or local governments during the year, and
      • Any prior year’s state or local income tax you paid during the year.
    • State and local general sales taxes-This is the tax you pay when you purchase items at the stores. You must have every receipt for that year to add your tax total, or if you are super organize, create an excel sheet with all the information on your receipt.
    • State, local, and foreign real estate taxes – This is the amount you pay in taxes to your home
    • State and local personal property taxes – This is your DMV payments
  3. Home mortgage points. this is the home mortgage interest or points from refinance.
  4.  Interest expense. Interest is an amount you pay for the use of borrowed money. For example:
    • Investment interest (limited to your net investment income) and
      Qualified mortgage interest including points
    • Student loan interest as an adjustment to income
    • Non-farm business interest
    • Interest incurred to produce rents or royalties
  5. Charitable Contributions. This one can be misunderstood. Some people give charitable contributions to their church thinking they will get the deduction. Remember you will only get the itemized deduction if you spend more than the standard deduction. So, if you are single, and gave your church, $3,000.00 this does not help you in your taxes. Only if you give your church more than $6,300.00.For contributions of cash, check or other monetary gift (regardless of amount), you must maintain a record of the contribution:
    • A bank record or a written communication from the qualified organization containing the name of the organization, the amount, and the date of the contribution.
    • In addition to deducting your cash contributions, you generally can deduct the fair market value of any other property you donate to qualified organizations. For any contribution of $250 or more (including contributions of cash or property), you must obtain and keep in your records a contemporaneous written acknowledgment from the qualified organization indicating the amount of the cash and a description of any property contributed. The acknowledgment must say whether the organization provided any goods or services in exchange for the gift and, if so, must provide a description and a good faith estimate of the value of those goods or services. One document from the qualified organization may satisfy both the written communication requirement for monetary gifts and the contemporaneous written acknowledgment requirement for all contributions of $250 or more.
  6. Miscellaneous expenses.  you have deductible expenses that qualify as miscellaneous itemized deductions, you can deduct certain of those expenses only to the extent that they exceed 2% of your adjusted gross income. Such expenses are:
    • Unreimbursed Employee Expense
    • Tax preparation fees
    • Other expenses
  7. Business use of home. This I do not advice because it will greatly depreciate your home and will affect when you sale or refinance. But if you don’t care, by all means use the deduction.
    • Exclusively and regularly as your principal place of business for your trade or business
    • Exclusively and regularly as a place where you meet and deal with your patients, clients, or customers in the normal course of your trade or business
    • A separate structure that’s not attached to your home used exclusively and regularly in connection with your trade or business
    • On a regular basis for storage of inventory or product samples used in your trade or business of selling products at retail or wholesale
    • For rental use
    • As a daycare facility
  8. Business use of car. Do you drive your car for your job? Not your self employed business. This can only be claim if you are required to drive to places from work. Does not count if you drive to work or vise versa. You must keep a record of the miles and the company does not pay you mileage.
  9. Business travel expenses. Did your company send you to a conference? or away from the home? Did they pay for those expenses? if the answer is yes, you can not use this deduction. This is only if the company did not pay for your expenses away from the office. You must keep a receipt
  10. Business Entertainment Expenses. This is only if your position requires you to interact with clients away from the office. Did they pay for those expenses? if the answer is yes, you can not use this deduction. This is only if the company did not pay for your expenses away from the office. You must keep a receipt.
  11. Work-Related Education Expenses. You may be able to deduct work-related education expenses paid during the year as an itemized deduction:
    • Tuition, books, supplies, lab fees, and similar items
    • Certain transportation and travel costs, and
    • Other educational expenses, such as the cost of research and typing
  12. Employee Business Expenses. This are expenses such as, Union Dues, purchase of protective equipment, phone bill (only the part use for work)
  13. Casualty, Disaster, and Theft Losses (Including Federally Declared Disaster Areas)-This is self explanatory, for more details visit http://www.irs.gov

I know, this is a lot of information, I hope it helps you understand your taxes better. My biggest advice is to understand before you sign your taxes. Ask the tax preparer to explain your deductions in details. The IRS can audit your taxes at any time, usually 2 years back. You are responsible for paying them back, not the tax preparer. If you have $300 and about 70 hours to invest, use them at the local H&R Block, they usually start their classes around August.

Remember YOU ARE RESPONSIBLE FOR YOUR OWN TAXES

 

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