The Grand Finale!

Today we are going to finish up . . . drum roll please . . . the Schedule A! There are so many different aspects to the Schedule A, and there will be different deductions among the millions of people who file tax returns, so breaking it down into sections is the easiest way to understand the whole thing. If you missed my two previous posts about Schedule A, check them out to learn how to take medical deductions, and interest, tax, and donation deductions. You don’t want to miss any possible deductions that could save you some extra cash!

Casualty and Theft Losses

Now on to the final stretch. Did you know that you may be able to take a deduction for casualty or theft losses? So what exactly does that mean. Well, this mean that you may deduct losses such as damage or destruction due to fires, floods, earthquakes, car accidents, terrorist attacks, etc. You cannot take a deduction for things such as damage a pet has done, accidentally breaking a glass while doing dishes, or damage due to purposefully setting fire to something or willfully causing an accident. See the full list of “can” and “cannot” deductions here.

Source: http://www.dumpaday.com/random-pictures/funny-pictures/funny-pictures-51-pics-7/
http://www.dumpaday.com/random-pictures/funny-pictures/funny-pictures-51-pics-7/

Once you have figured out what items have been subject to the circumstances above, you need to determine the original cost of the item(s), the fair market value of the property before and after the incident, and the amount of reimbursement you received (insurance claims, etc.). If your property was stolen, the ending fair market value is zero. There are two limitations when taking this deduction. The first limitation is the $100 rule. If you have multiple losses from the same event such as wind and flood damage from the same storm, you combine those losses into one loss and automatically subtract $100. If you have two separate losses such as your car was stolen, and part of your house flooded, you subtract $100 from each of those losses. The other rule is the 10% rule. After you have subtracted the $100, you then subtract 10% of your AGI. The remaining amount is your loss. If the remaining amount is negative, your loss is zero. Here’s an example to make it clearer:

“Example 1:

In June, you discovered that your house had been burglarized. Your loss after insurance reimbursement was $2,000. Your adjusted gross income (AGI) for the year you discovered the theft is $29,500. You first apply the $100 rule and then the 10% rule. Figure your theft loss deduction as follows.

1) Loss after insurance $2,000
2) Subtract $100 100
3) Loss after $100 rule $1,900
4) Subtract 10% × $29,500 AGI 2,950
5) Theft loss deduction –0–

You do not have a theft loss deduction because your loss after you apply the $100 rule ($1,900) is less than 10% of your adjusted gross income ($2,950).” (IRS Website)

“Example 2:

In March, you had a car accident that totally destroyed your car. You did not have collision insurance on your car, so you did not receive any insurance reimbursement. Your loss on the car was $1,800. In November, a fire damaged your basement and totally destroyed the furniture, washer, dryer, and other items stored there. Your loss on the basement items after reimbursement was $2,100. Your adjusted gross income for the year that the accident and fire occurred is $25,000. You figure your casualty loss deduction as follows.

Base-
Car ment
1) Loss $1,800 $2,100
2) Subtract $100 per incident 100 100
3) Loss after $100 rule $1,700 $2,000
4) Total loss $3,700
5) Subtract 10% × $25,000 AGI 2,500
6) Casualty loss deduction $1,200

(IRS Website)

Job Expenses and Miscellaneous Deductions

These next deductions are all limited by 2% of your AGI. If you are employed, you may be able to take a deduction for certain job expenses. If you are self-employed, these deductions will be taken on Schedule C, which we will discuss later. Certain job expenses include travel, union dues, continuing education expenses, etc. You cannot be reimbursed for these expenses in order to claim a deduction. You can also claim deductions for a variety of things such as tax preparation fees, safe deposit box fees, investment fees, and many other things. See the full list here to determine if you can take a deduction.

Once you have gathered all these deduction amounts, you multiply your AGI by 2%. If your deductions are less than this amount, your deduction is limited to zero. If your deductions are more, you are able to deduct the difference. For example, if 2% of your AGI is $1,000 and your deductions are $1,500, you will get a deduction of $500.

Hey, hey, hey . . . we’re finished with Schedule A!

Source: http://imgarcade.com/1/deduction/
Source: http://imgarcade.com/1/deduction/

We have finally finished up Schedule A! Remember that not all taxpayers will itemize deductions and you may need to take the standard deduction. However, be sure to take advantage of all your deductions in order to reduce your tax by as much as possible!

Tune into the tax bleep later this week as we switch gears to helping out all those ambitious self-employed businessmen and women out there!

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