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.

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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!

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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!

Taxes and Interest and Donations, OH MY!

Last week we went over the medical deductions portion of the Schedule A. If you missed it, check it out here to learn about the basics! Now we’ll dive into three more pieces of Schedule A and see more lions and tigers and bears … Oh wait, I mean “deductions”, you can take!

Taxes, Taxes, Taxes

Since you’re filing a tax return, it seems only fitting that you should be able to deduct taxes you have already paid throughout the year. If you own a home, you will most likely pay property taxes. You should keep track of these payments you make throughout the year, but if you don’t, you can go to your county treasurer’s website and look them up using your address and/or property owner’s name. You are also able to deduct taxes paid on personal property such as vehicles. You cannot deduct your entire car registration, but your registration bill should be broken down so you can tell which portion is taxes or fees.

Source: http://www.quickmeme.com/meme/35mlko

You can also deduct state and local general sales taxes or state and local income taxes; you cannot deduct both. Some states, such as Nevada, do not have state income taxes, and therefore, residents of states like Nevada, would opt to take the general sales tax deduction. If you keep receipts for all your purchases throughout the year, you can add up all the sales tax on those and use that as your deduction. Most people do not do that because it is too cumbersome, not many people save receipts all year-long anymore. Therefore, people often use the general sales tax deduction that is calculated automatically. You can use the IRS worksheet on page A-5 of the Schedule A instruction to calculate your deduction or an easier route is to use the IRS sales tax calculator. If you make any large purchases throughout the year such as a car or household appliances, be sure to save those receipts because the sales tax you paid on that item will often be greater than the deduction you’d receive by using the calculated sales tax deduction.

Interest

If you have a home mortgage, you probably pay interest. If you do, you should receive a Form 1098 which reports the total amount of mortgage interest you paid during the year. It may also show the property taxes you paid so you do not have to look them up online. Your 1098 might also show any mortgage insurance premiums paid which are also deductible. If you refinanced your house during the year, be sure to hang on to your precious HUD statement. Your HUD statement will show “adjusted origination charges” paid when you refinanced your house. You can input these origination fees on your tax return and amortize them over the life of the loan; you can continue receiving deductions years after you refinance! Additionally, if you are involved in investing, you can deduct interest on money you borrowed to purchase investments. Be sure to check the IRS website for any special limitations that may apply to you regarding investment interest.

Charitable Contributions

If you donate to charity, you are not only helping others around you, but if you are also adding more deductions to your tax return! In order for your donation to be deductible, the organization must be a qualified exempt organization. If you are not sure, the organization should be able to provide you with that information, or you can use the IRS search list to see if that organization qualifies.

Source: http://www.blogher.com/giving-down-what-does-mean

You should keep track of all cash and non-cash donations made throughout the year. On your tax return, you should list out which organizations you donated cash to and how much. With regard to non-cash donations, you should keep track of where you donated items to, and the fair market value of those items. If you are not sure of the value of the items you donated, Goodwill offers a good list of the value of donation items. See that list here if you are not sure how much of a deduction you should take. If your non-cash donations are $500 or greater, you will be required to list the organization, a list of items donated, and the fair market value. If your non-cash donations are less than $500, you only need the organization name and the fair market value of the items.

Be sure to continue tuning into The Tax Bleep so we can wrap up the Schedule A together!

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Doctor, Doctor, Give Me the News, I’ve Got a Bad Case of the . . . Schedule A Blues?

Schedule A: where your deductions come together. Schedule A lists all the deductions you are taking on your tax return. Those deductions include things such as out-of-pocket medical expenses, property and state taxes, certain types of interest, donations to charity, and a variety of other things. Today we’re focusing on the medical deductions portion of the Schedule A. Knowing the ins and outs of your medical expenses and how they affect your tax return may be quite different than what you think you already know. Let’s start by going over the basics.

So… vitamins are a type of medicine right? Wrong. The only expenses that can be used as a medical deduction are payments for prescriptions, doctor and dentist visits, health insurance, and even transportation to and from medical services. You CANNOT deduct expenses that were paid by your insurance company. You can only deduct expenses paid out-of-pocket. The main factor regarding medical deductions is that the expenses must be for a treatment or prevention of an illness or disease, whether it is mental or physical. Vitamins are not a technically a medicine and therefore cannot be deducted. There are also expenses that could be deducted in certain circumstances but not in others. For example, plastic surgery would be deducted if you needed it in order to fix a medical issue such as reconstruction of breasts after a person has had breast cancer. However, breast implants that a person buys purely for appearance reasons would not be deducted because they do not have a real effect on the functioning of the body.

Vroom, Vroom….! Screeeech! You can even drive your way to medical deductions. If you drive frequently for the sole purpose of medical treatment, you can deduct the money you spend on oil, gas, and any tolls you might pay. You cannot include expenses for your car insurance or general repairs. However, sometimes it may be more beneficial to use the standard mileage rate. The standard mileage rate is 23.5 cents for every mile driven for medical reasons. If you keep track of the number of miles you drove, you can multiply those miles by 23.5 cents and come to your deduction. Here’s an example to simplify things:

Rebecca was diagnosed with cancer during 2014. She lives in Chico, California, and must drive to Davis, California every week for different treatments and doctor appointments. This trip is approximately 200 miles round-trip. She estimates that she made that trip around 20 times during the year which would be a total of 4,000 miles. At the standard rate of 23.5 cents per mile, she would receive a deduction of $940. She spent $600 on oil and gas, so in this case, the optimal deduction would be to use the standard mileage rate instead of actual expenses spent on gas and oil.

If you are not certain whether or not a medical expense is deductible, consult your CPA or visit the IRS website to view an extensive list of expenses you can and cannot deduct.

Now for a bit of a downer… Just because you spend money on eligible medical expenses, does not mean you will get a deduction. You can only deduct medical expenses that are greater than 10% of your AGI. For example, if your AGI is $30,000, you can deduct any medical expenses that are above $3,000. If you spent $3,050 on medical expenses, you will only receive a deduction of $50. Therefore, the more money you make, the more medical expenses you must have in order for even a portion of them to be deducted at all. This is called “phase out”.

My recommendation for you is to keep an Excel spreadsheet recording your medical expenses. Categorizing them into “prescriptions”, “doctors and dentists”, “health insurance”, and various other categories, can make preparing your tax return very easy at the end of the year. Even if you have a CPA, your bill that you receive for your tax return preparation will be lower if he or she does not have to sift through every single medical receipt you have. After all that work, you may not even have enough medical expenses to receive a deduction. Staying organized is a huge help, not just regarding your medical expenses, but all you itemized deductions and income.

Feel free to comment below if you have any questions or feedback! Stay tuned to the Tax Bleep for all of your tax questions!

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