Itemize Deductions

When preparing federal income tax returns, a taxpayer may choose to itemize deductions or take his or her standard deduction, which in 2010 was $5,700 for single or married-filing-single filers, $11,400 for those married and filing jointly or with a qualifying widow(er), and $8,500 for those filing head of household. If your itemized deductions total more than your standard deduction, you should itemize your deductions. In order to itemize deductions on your income tax returns follow these steps.

Steps

  1. Obtain Internal Revenue Service (“IRS”) form 1040 Schedule A (“Schedule A”). You can find Schedule A at the IRS’s website at http://www.irs.gov/pub/irs-pdf/f1040sa.pdf or by visiting your local library or Post Office where income tax forms are available.
  2. Calculate your qualified medical and dental expenses. Add together the total amount of all qualified medical and dental expenses as shown on your receipts and report on line 1 of Schedule A. Some expenses that are considered qualified are prescription medications, medical examinations, diagnostic tests, x-rays, and laboratory expenses. To determine which expenses are qualified expenses and may be included, see IRS Schedule A Instructions (“Schedule A Instructions”): http://www.irs.gov/pub/irs-pdf/i1040sca.pdf.
  3. Determine the total amount of medical and dental expenses you may itemize. Only those expenses, which exceed 7.5% of your gross adjusted income, may be itemized. To calculate the amount you may itemize:
    1. Take your adjusted gross income, as reported on line 38 of IRS form 1040, and multiply it by .075.
    2. Subtract that number from your total qualified medical and dental expenses.
    3. This is the amount your may claim as a deduction on line 4 of Schedule A.
  4. Determine whether to deduct state and local income taxes or general sales taxes. You should choose the one that gives you the greater deduction and report the amount on line 5 of Schedule A. To calculate the taxes:
    • State and local income taxes can be determined by adding state and local taxes withheld, as listed on your W2 or 1099, estimated state or local tax payments you made, and mandatory contributions to qualified state programs in certain states. For a complete listing of qualified state programs, see Schedule A Instructions on page 3, at http://www.irs.gov/pub/irs-pdf/i1040sca.pdf.
    • General sales tax can be determined by adding the actual amount of sales tax you paid, according to your receipts, or by using the tax tables located in the Schedule A Instructions on pages A-12 through A-14 at http://www.irs.gov/pub/irs-pdf/i1040sca.pdf. If you lived in more than one county or state during the year, see the Schedule A Instructions, pages 4 and 5, at http://www.irs.gov/pub/irs-pdf/i1040sca.pdf for information on how to calculate your tax.
  5. Determine the amount of real estate taxes you paid. The amount can be determined from your tax bills and should be reported on line 6 of Schedule A. Check your tax bill to ensure that no amounts, which are non-deductible, have been included. Non-deductible items include:
    • Itemized charges for services such as trash collection, lawn mowing, or flat charges for water usage.
    • Charges for improvements that tend to increase the value of property, such as assessment fees for building a new sidewalk.
  6. Calculate all other deductible taxes you paid. Enter each total tax on the appropriate line of Schedule A. Depending on the year of the tax return; you may be able to deduct taxes paid on new vehicles, personal property, or income tax paid to a foreign country or U.S. possession. See the line-by-line instructions for Schedule A at http://www.irs.gov/pub/irs-pdf/i1040sca.pdf for more information on taxes that may be deducted.
  7. Report any mortgage interest and/or points you paid. If you took out your mortgage after October 13, 1987, and it totaled more than $100,000, see the Schedule A Instructions at http://www.irs.gov/pub/irs-pdf/i1040sca.pdf, to determine if you may deduct all of the interest you paid, or only a part of it. Interest and points are reported on different lines of Schedule A, based on whether it is reported to you on form 1098 or not. Report interest and points according to these guidelines:
    • Interest and points reported to you on form 1098 should be included on line 10 of Schedule A.
    • Interest you paid, which was not reported on form 1098, should be included on line 11 of Schedule A, along with the name and address of the person to whom you paid the interest.
    • Points you paid, which were not reported on form 1098, should be included on 12 of Schedule A.
  8. Determine your deduction for charitable gifts. You may deduct contributions to religious, educational, scientific, charitable, and literary organizations. You may also deduct gifts given to organizations that work to prevent child or animal cruelty. Follow these steps when including any gift in this deduction:
    • Verify the organization’s charitable status by checking IRS Publication 526 at http://www.irs.gov/pub/irs-pdf/p526.pdf for a list of charitable organizations, calling the IRS at 1-877-829-5500, or asking the organization to provide you with verification.
    • Determine whether the gift was $250 or more. When calculating the amount of a gift, treat each separate donation as a separate gift. For example, if you gave your church $5 a week for 52 weeks, for a total of $260, you should treat each $5 payment as a separate gift.
    • For all gifts of $250 or more, obtain a statement from the organization, which lists the amount of the contribution, a description of the property donated, whether you received goods or services in exchange for the gift, and if so, the value of the goods or services you received. Do not send the statement to the IRS with your taxes; simply keep it for your records.
    • If you gave gifts of more than 30% of your adjusted gross income, as reported on line 38 of IRS form 1040, your gifts of capital gain property were more than 20% of your adjusted gross income, you gave gifts of property that increased in value, or you gave gifts of the use of property, see Schedule A Instructions at http://www.irs.gov/pub/irs-pdf/i1040sca.pdf, for information on the amount which you can deduct.
    • Include gifts made by check or cash on line 16 of Schedule A, gifts made other than by check or cash on line 17, and gifts made in the previous year, but not reported, on line 18.
  9. Calculate any casualty or theft losses. You may take a deduction for losses due to theft, fire, vandalism, storm, accidents, or the insolvency or bankruptcy of a financial institution, so long as:
    • Each separate loss is a loss of more than $100.
    • The total of all losses, minus the $100 limit, is more than 10% of your adjusted gross income, as reported on form 1040, line 38.
  10. Calculate job expense and miscellaneous deductions. These items are reported and the deduction calculated on Schedule A, lines 21-27 as follows:
    • Job related expenses for which you were not reimbursed, such as union dues, and work related travel and education should be added up and reported on line 21.
    • Tax preparation fees, such as those paid to a Certified Public Accountant (“CPA”) or tax preparer, should be tallied, and reported on line 22.
    • Other expenses should be reported on line 23 and include amounts you paid to produce or collect taxable income and manage income-earning property. For example, your costs to collect rent, make repairs to rental property, and secure the property from vandalism or theft.
    • Calculate the amount of job related and other expenses that are deductible. To do this, take your adjusted gross income, as reported on line 38 of form 1040, and multiple it by .02, this will give you 2% of your adjusted gross income. Subtract the 2% of your adjusted gross income from the total of your job related expenses, tax preparation fees, and other expenses. The difference is the amount you can deduct, and should be reported on line 27 of Schedule A.
  11. Calculate and report all other deductions. Other deductions that may be included on line 28 or Schedule A are gambling losses, to the extent that gambling earnings were reported on your form 1040, casualty and theft losses from income producing property, certain unrecovered pensions investments, and work related expenses for disabled persons. For a complete list of expenses that may be deducted on line 28, see Schedule A Instructions at http://www.irs.gov/pub/irs-pdf/i1040sca.pdf.
  12. Add up your deductions. Add the amounts in the far right column of Schedule A. This is your total itemized deduction. If your itemized deduction is more than your standard deduction, report the itemized deduction, instead of the standard deduction, on line 40 of your form 1040.
  13. Include a completed Schedule A with your form 1040 when you file your income tax returns. Be sure that your name and social security number are filled in at the top of the form.

Sample Deduction Sheets

Doc:Deductions for Business Trip,Deductions for Conference,Deductions for Working Vacation

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Sources and Citations

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