Standard Deduction vs Itemized Deduction

Afterfiguringtheadjustedgrossincome(AGI),eitherthestandarddeductionoritemizeddeductionsmayreducetheAGI.Inmostcases,thetaxpayercanchoosewhichdeductiontotakeandusuallytakesthelargestdeduction,whichresultsinthelowesttax.

The standarddeduction isafixedamountthatis based uponthe taxpayer’sfilingstatusandage,andwhetherornotthetaxpayerisblind.It canalsobereducedfortaxpayerswhocanbeclaimedasanexemptionby anothertaxpayer.The standarddeductionisusually adjustedforinflationfromyeartoyear.Itisadvantageoustotake thestandarddeduction ifitislargerthanthetaxpayer’stotalallowableitemizeddeductions.

StandardDeductionAmounts

2016StandardDeductionAmounts(fortaxpayersunderage65andwhoareNOTblind)

  • Single
/ $6,300
  • MarriedFilingJointly
/ $12,600
  • Head of Household
/ $9,300
  • MarriedFilingSeparately
/ $6,300
  • QualifyingWidow(er)
/ $12,600

Taxpayerswhoare65yearsoroldorwhoareblindreceivelargerstandarddeduction amounts.Theageandvisioniftaxpayer(iffilingjointly)iscountedseparatelyforeachspouse.

Thereareadditionalstandarddeductionamountsfortaxpayersage65orolderorareblindorboth.Afterdeterminingifthe taxpayerisatleast age 65or blind,anadditionalamountcanbeaddedtothestandarddeduction amountforeachoccurrence (taxpayerandspouse).ForunmarriedtaxpayersfilingSingle or HeadofHousehold,theadditionalamountis$1,550.FortaxpayersconsideredmarriedandfilingasMarriedFilingJointly,QualifyingWidow(er),orMarriedFilingSeparately;theadditionalamountaddedis$1,250foreachoccurrence.

Theadditionalamountfor blindnesswillbeallowedifthetaxpayerorspouse aretotally orpartlyblindonthelast dayofthetaxyear.Ifpartlyblind,acertifiedstatementfromanoptometristoreye doctormustbeobtaineddeclaring nomorethan20/200visionin one eye(evenwitheyeglassesorcontactlenses),orthatthefieldofvisionisnotmorethan20degrees.

ItemizedDeductions

Eventhoughmosttaxpayersareeligibletotakethestandarddeduction,itismoreadvantageousforsometaxpayerstotakethetotalallowableitemizeddeductions. Theallowableitemizeddeductionsarespecificandcanbesometimesbelimited.Ifataxpayeritemized,ScheduleAandForm1040mustbefiled(cannotfile1040EZor1040A).

Oncetheamountofitemizeddeductionsaredetermined,theamountiscarriedtoForm1040,line40,andthensubtractedfromAGI.

MedicalandDentalExpenses

Ataxpayermaydeductcertainmedicalanddentalexpensespaidthatexceed10%(7.5%iftaxpayerorspouseis65orolder)of AGI(Form1040,line 38).IRSPublication502explainsmedicalanddental expensesthatcanbe claimedonSchedule A,andexpensesthatcannotbededucted.

Thedeductionisallowedforexpensespaidforthepreventionandalleviationofaphysicalormentaldefectorillness.Medicalexpensesincludethoserelatedtodiagnosis,cure,mitigation,treatment,orpreventionofdisease,ortreatmentaffectinganyfunctionorstructureofthebody.

Deductionguidelines

  • Expensesmustbe for taxpayer,spouse, or dependent, or foranyonewhowouldqualifyasadependentexceptforhavinga grossincomeofmorethan$4,050
  • Expensesmustbepaidduringthecurrenttaxyear,regardlessofwhenincurred
  • Expensesmustnot be compensatedby insurance
  • Expensesmustnot be paid out ofatax‐free medicalsavings or health savingsaccount
  • Thetaxpayersubtractsfromthedeductiontotalanyreimbursementofmedicalexpenses,whethertheywerepaidtothetaxpayerordirectlytothedoctororhospital

DeductibleTaxes

•Taxpayerswhoitemizemightbeabletodeductstate,local,andforeignincometaxes.Stateandlocalpersonalproperty taxesandstateandlocalsalestax(inlieuofstateincometaxes)mayalsobedeductible.Certainstate,localandforeignrealestatetaxesaredeductibleaswell.

•Stateandlocalincometaxeswithheldfromwagesaredeductible intheyearwithheld.Stateandlocalincometaxestimatesorprior‐yearpaymentsarealsodeductibleintheyearpaid.Foreignincometaxesusuallyqualifyasanitemizeddeduction ortaxcreditintheyearpaid.

DeductibleInterest

SomeinterestpaidisdeductibleonScheduleA.Inorderforinteresttobedeductiblethetaxpayermustbeliableforthedebtandtheinterestmustbepaidinthecurrentyear.Homemortgageinterestandinvestmentinterest(limitedtonetinvestmentincome)arebothdeductible.Personalinterestcannotbededucted.Personalinterestisinterestpaidonaloantopurchasepersonalpropertysuchasacar,creditcard,orinstallmentinterestforpersonalexpenses,andothernon‐business‐relatedproperties.

Gifts to Charity

Charitable contributions are donations made to qualified charitable organizations. Thecontributions can be monetary or physical property. Qualified charitable contributions aredeductible as an itemized deductions. Taxpayers must also meet such record‐keepingrequirements as retaining receipts, bank statements, cancelled checks, etc. IRS Publication 526outlines the requirements for each donation type.

Qualified organizations can be public or private foundations, including religious organizations,fraternal orders, non‐profit hospitals and schools, foundations for the prevention of cruelty tochildren, and organizations of war veterans. Payments to individuals are never deductible.Limits also apply on deductible amounts in addition to the general limits on itemizeddeductions. Specific record‐keeping requirements must be met in order to deduct charitablecontributions and vary depending on the value and type of contribution. For non‐cashcontributions of more than $500, Form 8283 may be required. For more information, see

Publication 526, Charitable Contributions.

Casualty, Theft, and Losses

Casualty, theft, and losses are the unexpected loss of property and are deductible as anitemized deduction. A casualty occurs when property is damaged as the result of an identifiableevent that is sudden, unexpected, and unusual. A theft occurs when property is taken orremoved with the intent to deprive the owner of it. A theft is not mislaid or lost property. A losson deposits occurs when a financial institution becomes insolvent or bankrupt.The amount the taxpayer can deduct as casualty or theft is the amount not reimbursable byinsurance.Casualty and theft losses are reported on Form 4684 and are carried to Schedule A.

Job Expenses and Certain Miscellaneous Deductions

Certain expenses can be deducted as miscellaneous itemized deductions on Schedule A, but areallowed only to the extent they exceed 2% of AGI.

Deductions subject to the 2% limit fall into the three categories:

•Unreimbursed employee expenses

•Tax return preparation fees

•Other expenses

Unreimbursed Employee Expenses

Unreimbursed employee expenses can be deducted only if paid or incurred during the tax yearfor carrying on the trade or business of being an employee. The expenses must be ordinary andnecessary. Some examples of unreimbursed employee expenses include:

•Dues to professional societies

•Legal fees related to job

•Occupational taxes

•Licenses and regulatory fees

•Passports for a business trip

• Union dues and expenses

•Work‐related education

• Tools and supplies used in job

• Certain educational expenses

Certain Miscellaneous Deductions

TaxPreparationFees

Taxpayerscanusuallydeductfeespaidtohavetheirtaxreturnpreparedintheyeartheywerepaid.Feespaidtoataxprofessional, costoftaxpreparationsoftwareprogramsandtaxpublications,andfeespaidfor electronically filingatax returncanbe deducted(subject tolimits).Enter theexpensespaidonSchedule A,line 22.

Other Expenses

Otherexpensesthatarelimitedtotheamountsthatexceed2%ofAGIarereportedonScheduleA, line23, andinclude:

  • Certainlegalandaccountingfees
  • Clericalhelpandofficerent
  • Custodial(forexample,trustaccount)fees
  • Thetaxpayer’sshareoftheinvestmentexpensesofaregulatedinvestmentcompany
  • Certainlosses onnon‐federally insured deposits inaninsolvent or bankrupt financialinstitution.
  • CasualtyandtheftlossesofpropertyusedinperformingservicesasanemployeefromForm4684,lines32and38b,orForm4797,line18a.
  • Deductionforrepaymentofamountsunder aclaimofrightif$3,000 orless
  • Conveniencefeechargedbythecardprocessorforpayingthetaxpayer’sincometax(including estimatedtaxpayments) bycreditor debitcard. The deduction isclaimed fortheyearinwhichthefeewaschargedtothecard.

OtherMiscellaneousDeductions

Onlythe expenseslisted nextcanbedeductedonline 28 of Schedule A.List thetypeandamountofeachexpenseonthedottedlinesnexttoline28.Ifmorespaceisnecessary,attachastatementshowingthe typeandamountof eachexpense.Enteronetotalonline28.Thesedeductionsare notlimited.

  • Gamblinglosses (gambling losses include, butare notlimitedto,the costofnon‐winningbingo,lottery,andraffletickets),butonlytothe extentofgamblingwinningsreportedonForm1040,line21.
  • Casualtyandtheftlossesofincome‐producingpropertyfromForm 4684,lines32and38b,orForm4797,line18a.
  • Lossfrom otheractivitiesfromScheduleK‐1(Form1065‐B), box2.
  • Federalestatetaxonincomeinrespectofadecedent.
  • AmortizablebondpremiumonbondsacquiredbeforeOctober23,1986.
  • Deductionforrepaymentofamountsunderaclaimofrightifmorethan$3,000
  • Certainunrecoveredinvestmentinapension.
  • Impairment‐relatedworkexpensesofadisabledperson.

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