The sweetest 90-year-old lady has been my client for years. She meticulously summarizes her potential itemized tax deductions and gives me a detailed list. But I can’t use a bit of it on Schedule A when I’m filing taxes. Why? Her standard tax deduction far exceeds any itemized tax deductions she could possibly generate.
What about you? Are you working too hard to itemize—for no benefit?
Your standard tax deduction for 2011 is as follows:
Single $ 5,800
Married, filing jointly or qualifying widow(er) $ 11,600
Married, filing separately $ 5,800
Head of Household $ 8,500
Folks who are over age 65 or who are blind can add $1,450 for each condition when filing as single or head of household. Add $1,150 to each condition if you are married or are a qualifying widow(er).
Let’s look at itemizing when filing taxes
Medical – Before you can deduct the first dollar of medical expenses, they must exceed 7.5 percent of your adjusted gross income (AGI). For most people, this hurdle is insurmountable. However, the average employee paying for his/her own insurance could exceed this threshold.
Medical expenses include certain child or dependent care costs, therapies of all kinds, and special schools. It also includes assisted care facility costs. If you have care provider costs, be sure those people are either on payroll as household employees or are working through an agency.
Taxes – High-income folks will have enough state tax withheld to be able to itemize. Deduct the cost of state disability insurance withheld on the paycheck. Often overlooked is the auto registration fee, which is tax deductible. Property taxes deductions are limited to actual taxes. When your property tax bill includes other assessments, those are not deductible.
There is an alternative to paying state income taxes—use sales taxes instead. That’s the option to use when your state has no income taxes. When you use sales taxes instead of income taxes, your state tax refund won’t be taxable income next year.
Interest – The home mortgage interest deduction is limited to the interest on acquisition debt, plus $100,000. As people refinance their loans to bring rates down to 3 percent to 5 percent, interest deductions drop accordingly.
Points are not deductible when you refinance, and you must spread the deduction over the life of the loan. Note that PMI insurance is still a deduction in 2011.
Charity – People who tithe (contribute 10 percent or more of their income) often generate enough expenses to push their itemized deductions over the top. If you do this, be sure you have receipts for all donations of $250 or more and prepare detailed schedules of non-cash donations totaling $500 or more. Use the free ItsDeductible software to help you define the values of the items you donate.
Casualty and Theft – Personal losses must exceed 10 percent of AGI plus $100. The form is complicated and may involve appraisals—and it generally generates an audit, after all your troubles. Whoopee!
Miscellaneous Itemized Deductions – This is sort of a catchall area for all other deductions. Most expenses are reduced by 2 percent of AGI. This is a valuable area for people who pay hefty union dues or who have lots of unreimbursed employee business expenses, including mileage and travel.
Tax Filing strategy tips:
- Don’t get greedy with employee business expenses. This major area of abuse is regularly audited.
- When itemized deductions are not much more than standard deductions, don’t itemize. This will reduce your chances for audit.
Money Management Tips: Storing Your Paperwork
Last-Minute Ideas for Saving Money on Your Taxes
Documenting Your Donations for Tax Deductions
Tax Deduction for Claiming Elderly Relatives and Dependents
Tax Tips: Tax Implications of a New Baby
Paying Taxes on Self-Employed or Side Income
Eva Rosenberg, EA is the publisher of TaxMama.com , where your tax questions are answered. Eva is the author of several books and ebooks, including the new edition of Small Business Taxes Made Easy. Eva teaches a tax pro course at IRSExams.com and tax courses you might enjoy at http://www.cpelink.com/teamtaxmama.