Itemizing Deductions on a Federal Tax Return
It’s simple to determine whether to itemize deductions. A taxpayer’s deductible expenses are totaled and compared to the standard deduction determined annually by the Internal Revenue Service. If expenses are larger than the standard deduction, itemizing deductions is the better choice. The IRS groups expenses by categories for easy calculation.
Medical and Dental Expenses
This category of deductible expenses includes the costs of hospital care, medical and dental insurance, long-term care insurance, prescription medications, office visits, lab and clinic services, transportation, and programs to stop smoking. The costs of supplementing Medicare Part B and premiums paid for Medicare Part D are included. Lodging (up to $50 a night) while away from home to receive medical care is deductible. There are two methods to deduct transportation expenses. Either the actual cost method (gas and oil) or the medical mileage method may be used. The amount for medical mileage is found on IRS Form 1040 for the current tax year. This amount is multiplied by the miles traveled to and from the place medical care is received. Parking and tolls may be included using either method and transportation by ambulance is always deductible.
Real estate tax, state and local income tax, state and local general sales tax, and vehicle license fees (not the entire cost of vehicle registration) are deductible on a federal tax return.
Qualified home mortgage interest is deductible. Qualified interest must come from a loan secured by a main or second home. This includes interest on first and second mortgages and mortgages to refinance. Home equity loan interest is deductible if the loan is used to buy, build, or improve a home. Interest on credit cards is not deductible.
Cash donations to churches, temples, synagogues, and mosques are deductible. Cash given to the Girl Scouts, Boy Scouts, Boys and Girls Clubs of America, CARE, Goodwill Industries, Red Cross, Salvation Army, and the United Way is deductible. If cash donations to federal, state, or local governments are solely for public purposes, they are deductible. For non-cash donations, the value of what the items will be sold for (not their replacement cost) is the deductible amount.
Money lost by a financial institution due to insolvency or bankruptcy is deductible, as well as the cost of proving the loss occurred. Losses due to theft, vandalism, fire, and storms are deductible; amounts paid by insurance must be subtracted first. The cost of car, boat, and other accidents not covered by insurance are deductible.
Employee Business Expenses
Ordinary and necessary expenses not reimbursed by an employer are deductible. These expenses include the cost of tools, uniforms and cleaning, travel and lodging, 50 percent of meals while away from home to conduct business, gifts to clients, and entertainment. Deductions for gifts are limited to $25 per client.
Miscellaneous Itemized Deductions
These include home office expenses, credit card convenience fees, gambling losses up to the extent of gambling winnings, and tax preparation fees.
Federal income and most excise taxes, Social Security, Medicare, federal unemployment, railroad retirement taxes, and customs duties are not deductible. Federal estate and gift taxes, taxes on gasoline, car inspection fees, assessments for sidewalks or other improvements to property owned, or taxes paid for someone else, are not deductible.
The amount of the standard deduction increases every year. For the current tax year, filing statuses and the corresponding amounts for the standard deduction are found on the IRS Form 1040 and on the IRS website. In case of an audit, taxpayers need to keep documentation for all itemized deductions in a safe place. Canceled checks for cash donations over $250 are no longer acceptable to the IRS and are to be documented by the institution accepting the donation and sent to the donor.