This is the time of year when most Americans are becoming more actively engaged in the preparation of their individual Federal income tax returns. While there are not many options available for reporting income, there could be some opportunities to reduce your taxable income (and directly related income taxes) by carefully reviewing the instructions for the completion of Schedule A (Itemized Deductions) for Federal form 1040. While there are variances from state to state, most states either allow the same deductions as provided by Federal laws or they require various adjustments. You can obtain specific details for your Federal tax return deductions by reading the instructions for Schedule A on the IRS website: http://www.irs.gov/pub/irs-pdf/i1040sca.pdfÂ
There are seven major categories: 1) Medical and Dental Expenses, 2) Taxes You Paid,  3) Interest You Paid, 4) Gifts to Charity, 5) Casualty and Theft Losses, 6) Job Expenses and Miscellaneous Deductions, and 7) Other Miscellaneous Deductions.
You will only realize a tax benefit from those total medical expenses that are greater that 7 1/2% of your total income (Adjusted Gross Income). There is a deduction for state and local income taxes for those states that do not have a state income tax (i.e. Florida and Texas). If you have all of your receipts to document your deductions, you have the option to use either the amounts from the IRS tables or the actual total amount from your receipts. Large ticket (cost) items such as cars, boats, airplanes, recreational vehicles, etc are additions to the IRS tables. If you own a home, in addition to your mortgage interest don’t forget to deduct any points that were paid (this amount is usually provided on the Form 1098 that you receive from your mortgage company) plus Mortgage Insurance Premiums (PMI) paid for homes purchased after December 31, 2006. PMI is required if you had less than 20% equity in your home when you purchased or re-financed it.Â
If you and your spouse paid expenses jointly and are filing separate tax returns you should review IRS Publication 504 for guidance on the allocation of these expenses. Additional information on itemizing deductions from the IRS follows:Â
(more…)
