DEDUCTIONS
Should I itemize this year?
The only sure way to determine which method saves the most
tax dollars is to run the numbers. Use Schedule A to list all your deductible
expenses and compare the total to the standard deduction for your filing
status. If your actual itemized expenses exceed the standard deduction, you’ll
save money by itemizing.
How much is the standard deduction this year?
If you are single or married filing separately, your basic
standard deduction for 2009 is $5,700; head of household – $8,350; or married
filing jointly or qualifying widow or widower – $11,400. If you’re over age 65
at the end of the tax year or legally blind, you’re entitled to an additional
standard deduction, depending on your filing status.
What expenses can I itemize?
Taxpayers can usually reduce their taxes by itemizing
expenses for mortgage interest, taxes, charitable contributions, medical care,
casualty losses, and other miscellaneous deductions. If you work with a
professional tax preparer, you may deduct the fees you paid to have the return
prepared.
Casualty and theft losses are deductible in the year the
loss was discovered. Uninsured losses caused by theft, vandalism, fire, storm,
or similar causes are deductible only if you itemize and only to the extent
they exceed 10 percent of your adjusted gross income (AGI). The first $100 in
losses for each event is nondeductible.
Texans won’t want to overlook the state and local sales tax
deductions. Texas taxpayers who itemize their tax deductions may either save
their receipts or use the IRS sales tax tables to determine how much to
deduct.
Other common deductible expenses include home mortgage
interest expense on up to $1 million in home acquisition debt ($500,000 for
MFS) and $100,000 ($50,000 MFS) in home equity debt, state and local income and
property taxes, and charitable contributions to qualified organizations.
Gifts of $250 or more require a statement from the
charitable organization showing the amount contributed and whether you received
any goods or services in return. A canceled check is not sufficient proof. If
you give a non-cash gift worth more than $5,000, you must get a qualified
appraisal to deduct it.
No deduction is allowed for most contributions of clothing
and household items unless the donated property is in good used condition or
better.
Medical expenses exceeding 7.5 percent of your AGI also may
be deducted. For AMT, medical expenses must exceed 10% of AGI to be deducted. Examples of
deductible medical expenses include fees for doctors, dentists, chiropractors;
insurance premiums for medical and dental insurance; prescription medications;
hospital care; X-ray and laboratory services; and other related costs.
Miscellaneous expenses exceeding 2 percent of your AGI are
deductible. This category includes un-reimbursed employee business expenses,
investment expenses, and tax preparation fees, among others.
I’ve heard CPAs talk about bunching my deductions. What is
it and how does it work?
If you tallied all qualified expenses and came up short for
2009, don’t assume you can’t itemize in future years. Consider alternating
between taking the standard deduction one year and “bunching” deductible
expenses into the year you itemize. Bunching refers to the process of timing
your expenses so that they are higher in one year and lower the following.
The easiest deductions to juggle between tax years are
charitable contributions, state and local income and property taxes, and your
January home mortgage payment. For example, you could double up on your
charitable contributions and make them every other year rather than annually.
In the year you decide to itemize, you can make your January mortgage payment
in December to boost your mortgage interest expense. You should also try
bunching deductions subject to AGI-based limits like medical and dental
expenses and miscellaneous itemized deductions. Timing elective medical
procedures, such as braces and laser eye surgery, is a common way to qualify
for the deduction.
Be aware that if your AGI exceeds certain amounts, your
total allowable itemized deductions may be reduced. For 2009 your itemized
deductions may be reduced if your AGI exceeds $166,800 or $83,400 for married
taxpayers filing separately. This excludes deductions for medical expenses,
casualty and theft losses, and investment interest expenses.
I’ve already filed my return, but I just realized that I
could have gotten a refund by itemizing my deductions. What should I do?
If you are willing to recalculate your taxes, you can file
an amended return. Form 1040X will let you negate your original standard
deduction and, in its place, list all the money-saving deductions you should
have taken. Just be sure you still have the paperwork and receipts to
substantiate your deductions in the event of an audit. Generally, tax returns
must be amended within three years of the original filing deadline. A CPA can
help you correct your past returns and provide you with additional strategies
for timing your deductions to maximize your tax savings.
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 American Institute of Certified Public Accountants |
 Texas State Board of Public Accountancy |
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Tax
