Its tax time again and many Americans will be doing their own taxes this year by using online filing. Before I completed my Bachelor of Science Degree in Accounting, I learned from H & R Block how to get a bigger refund. I can only imagine how many millions of tax payers fail to take advantage of itemized deductions on their tax preparation that they do themselves. This may be the reason why H & R Block is offering to do free simple tax preparation or Form 1040EZ.
This is especially true for college students who are used to obtaining all of their tax money back from the government by filling out Form 1040EZ. Every college student who fails to use Form 1040 and read the instructions is missing out on thousands of dollars in tax deductions or credits along with the American Opportunity Credit.
“In arriving at taxable income, individuals may subtract from Adjusted Gross Income (AGI) the larger of the standard deduction or the sum of all itemized deductions (Bandy, Ford, Gardner, Joseph, Luna, & Schadewald, 2011). “You should itemize deductions if your allowable itemized deductions are more than your standard deduction” (IRS.gov, 2010). You should fill out schedule A to determine whether or not your itemized deductions exceed you or the person you are preparing a return for standard deduction which is $5700 for a person whose filing status is single for the year 2009.
The first of the itemized deductions on Schedule A is for medical and dental expenses. You can deduct for medical expenses, you can add up all the medical and dental expenses and premiums on insurance coverage that you paid for you or someone else even if they did provide for over half their support. The total amount that you can deduct is any amount that exceeds 7.5% of your AGI. The standard deduction or itemized deductions are subtracted from your AGI along with tax credits to determine your taxable income. Filling out Schedule A will help determine whether or not itemizing your deductions will reduce your taxable income more than the standard deduction. You can also deduct 24 cents a mile for driving you or a person who is receiving medical care that you are paying for as part of an itemized deduction.
The next part of schedule A is your itemized deductions for the taxes that you paid. You can deduct the state income tax you paid or the general sales tax that you paid for major purchases. You can deduct the taxes you paid on a new motor vehicle. However, you cannot deduct both. You can deduct the real estate taxes you paid to your state or local government
The next itemized deduction category is the interest you paid. You can’t deduct the interest paid on your motor vehicle. However, you can deduct the interest paid on your home, home insurance, and any amount of interest that you paid on investing to make more income. You can deduct charitable donations and if your contributions were more than $250 you have to fill out a special form to verify these contributions. If you had someone steal something from you or if you suffered losses due to an investment or other capital asset becoming worthless than you can deduct the loss provided that you sold the asset for less than you purchased it or the fair market value of the asset in the year it was sold or the theft or loss was incurred. To give you an example, say your home is damaged by a flood and you have no flood insurance. You sell your home instead of fixing it and the loss is the amount of difference between the amounts you sold the asset for minus the fair market value of the asset before the loss or catastrophic unexpected event took place. This also includes investments that went bad or did not turn a profit as long as the loss was realized in the 2009 year.
You can also deduct business expenses. These are expenses that you incur while making money. Your union dues, your mileage depreciation on your car, uniforms, cell phone, computer, and any other expense that you is required for you to make money. The total amount that you can deduct is equal to 2% of your AGI. To give you an example, I use my cellular phone for my job and personal use. I can deduct half of my cell phone bill because it is a necessary part of my job. Another example, my car is used during my work hours so I can fill out form 2106 and deduct my business expenses including the mileage from delivering pizzas. However, I cannot deduct the mileage from driving to and from work. My tax preparation fees are also a part of my itemized deductions.
There are more deductions than any normal person can think of this is why they pay people to do their taxes for them. There are many other itemized deductions that could have been discussed. The important thing to remember is that in order to pay less income taxes or to get a bigger refund you have to figure if the amount of itemized deductions is greater than the standard deduction in order to ensure that you or the person you are preparing taxes for is getting the biggest refund or to limit the amount they have to pay. There is a phase out of the amount of itemized deductions you can claim once your income reaches over $166,800. If your income is less than that amount than there is no limit to the deductions you can make except for your AGI.
Comments