Generally, you must decide whether to itemize or to use the standard deduction on your income-tax return. You should itemize if your allowable itemized deductions are greater than your standard deduction. The taxpayer must maintain the records and receipts to substantiate the itemized deductions. All deductions are reported in the tax year in which the eligible expenses were paid.
You may benefit from itemizing your deductions on Form 1040, Schedule A if you:
- Had large, uninsured medical and dental expenses. Payments for doctors and dentists, premiums for medical insurance, payments for prescription drugs, and medical transportation are considered. For the 2019 tax year, you can deduct health costs on your tax return for yourself, your spouse and your dependents only when the expenses exceed 7.5 percent of your adjusted gross income (AGI). The types of medical expenses are constantly expanding as new tax and IRS court decisions are rendered. It may be wise to check for specifics with a tax professional.
- Had state and local income taxes withheld from your wages or paid estimated state taxes. Real-estate taxes, personal property taxes, and state and local sales taxes fall into this tax-deductible category. For 2019, the limit for this deduction is $10,000 for state and local taxes plus property taxes.
- Paid mortgage interest on your principal and/or vacation home, or private mortgage-insurance premiums. For 2019, the maximum mortgage amount has been reduced to $750,000 to purchase a primary residence. Also, points paid on a new home and investment interest can be deducted. Personal credit-card interest is not deductible.
- Made large contributions to qualified charities. Both cash and noncash (usually clothing) items are considered. If noncash items exceed $500, you must attach IRS Form 8283, Noncash Charitable Contributions. One can deduct charitable donations only if you itemize your tax return.
- Had large, uninsured casualty losses. For 2019 and beyond, only presidentially-declared Federal disaster losses will be allowed as a casualty deduction.
- Had gambling losses, but only to the extent of gambling winnings. For example, a person wins $3,000 in certain gambling activities and loses $3,500 in other gambling activities can deduct only $3,000 of the losses against the $3,000 income, resulting in a break-even gambling activity. The remaining $500 excess loss is not deductible.
Itemized deductions allow taxpayers to reduce their taxable income and thereby pay less in taxes. If you incorrectly filed your return using the standard deduction and want to change to itemized deductions, you may do so within a three-year period allowed for amending your return.
Caution: If you are married and filing a married-filing-separately return, if your spouse itemizes deductions, then you are also required to itemize on your tax return.
Barry Lisak is an IRS Enrolled Agent, meaning that he has passed special U.S. Treasury Department exams that qualify him to represent clients dealing with audits or tax-resolution cases. Any questions can be directed to him at (516) TAX-SAVE, or firstname.lastname@example.org.
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