Everyone wants to itemize, but not everyone can.
Schedule A is the most widely used tax form for deductions used by those with homes and/or medical deductions. To use Schedule A the amount deducted from your income MUST be more than your standard deduction. The standard deduction, which changes year to year, is what the government allocates to you as head of household, single, married filing together / filing separately and widowed.
Let’s take a few sentences to clear up how you select your filing status. One of the most common misconstrued perceptions is that you can live in the same household and file head of household with each claiming a child(ren); you can’t. You are either together or not. Head of household can become an issue when going through a divorce, so make sure you discuss this with your attorney to have a pre-arrangement prior to tax time. One key element on head of household – if your spouse left you and you do not know where the spouse is located then you may file head of household and claim yourself and your child(ren). Please, make sure you, your attorney or your preparer reads the fine print in the IRS instructions and file early!
Going back to Schedule A, gather your documentation on expenses associated with your household so that you can determine if filing Schedule A behooves you or if you should use the government allocated deduction for your filing status. Schedule A is divided into several sections:
Medical and dental deductions. The medical deduction has several subsections that include prescription expenses, over the counter expenses, medical mileage, hospital stays, and hospital meals. Each category and subcategory has limitations, so be sure you have the data accurate, provable and itemized. Also, ensure all your expenses are out of pocket and have not been reimbursed. That is critical! Taxes you paid are next. This is state and local taxes, real estate taxes on your land, your home, and in some parts of the country tax you paid on your vehicles as part of that state’s taxes (Texas is not included). Other taxes can be sales tax. Interest you paid. This is your mortgage interest and points, investment interest. Charity donations – this is cash, item value, stocks/bonds you donated, merchandise value. Again, this must be officially documented. This can be to a church, an official 501c-3 nonprofit, and mileage you drove to and from your volunteer work. Casualty and theft loss is calculated on attachable Form 4684 and its own set of rules and regulations to follow. This will be critical in natural disasters. Job expenses is only for unreimbursed expenses from your employer, such as job travel, union dues, job education, tools that you bought that you only use for your job. Clothing is a common misapplied expense. If you are traveling and your suit is sent to the dry cleaners when you are on business – that is an acceptable deduction. Commonly used clothes, suits, pants, shoes that you can use every day everywhere is not an acceptable deduction. Uniforms that can only be used at your place of employment that you buy, is acceptable. Tax preparation fees – software bought, what you pay a preparer, is acceptable. Other investments, such as renting a safe deposit box at a bank, are deductable and often overlooked.
Other miscellaneous deductions such as those associated with your employment can be listed here. Basically, whatever money you expended to make taxable income, can be listed. However, buying a lottery ticket does not count. In the case of gambling: Gambling losses, but only to the extent of gambling winnings related to line 21 of the Form 1040 can be listed here. Casualty and loss from income producing realty; Loss from other activities from Schedule K-1 (Form 1065-B), box 2; Federal estate tax on income you paid in respect of a decedent. Amortizable bond premium on bonds; Deduction for repayment of amounts under a claim of right if over $3,000. Certain unrecovered investment in a pension; Impairment-related work expenses of a disabled person.
Because there are many caveats to the miscellaneous deductions, let a professional prepare them.