By Michael Aston, E.A.
Alhambra Tax Center
You don’t own a home? You don’t have mortgage interest and property taxes to deduct on your income tax return? If not, the IRS allows a Standard Deduction.
What is a Standard Deduction?
A Standard Deduction is a gift the IRS gives to taxpayers to help lower the tax liability. For the year 2016 the standard deduction will be:
Single (S) or Married Filing Separate (MFS) $6,300;
Married Filing Joint (MFJ) and Qualifying Widower (QW) $12,600;
Head of Household (HOH) $9,300.
There is an additional amount for age 65 or older and for a blind person. This additional amount is:
MFJ, QW or MFS $1,250;
Single or HOH $1,550.
The IRS also allows Taxpayers to itemize their deductions. If itemized deductions are higher (than the Standard Deduction), most will use Form Schedule A. Below is some information on the main categories for itemized deductions, to get a detail list of the deductions go to www.irs.gov or contact your tax-preparer.
Medical Expenses has a threshold of either 7.5% if either spouse is born before January 2 1950, 10% for all others of the adjusted gross income (AGI). For example, somebody born in 1960 that has an AGI of $50,000 will not be able to deduct the first $5,000 of medical expenses. So if they have $8,000 in qualified medical expenses, only $3,000 will be used on the Schedule A.
Taxes Paid does not have a threshold; qualified taxes will be fully deductible. There are five taxes that may be deductible:
and Local Income Tax
-State and Local General Sales Tax
-Real Estate Taxes
-Personal Property Tax (usually the DMV license fee)
-Income Tax Paid to a Foreign Country or U.S. Procession
Please note the first two taxes state income tax and general sales tax, only one or the other can be used.
Interest Paid does not have a threshold; qualified interest will be fully deductible. Some of the following expenses fall under the interest paid category; home mortgage interest, points or origination fees and mortgage insurance premiums.
Charitable Contributions to a qualified charity can be deductible if it is cash or property, there is no threshold for this deduction.
Casualty and Theft Loss does have a 10% threshold like the medical expenses, plus there are some other rules that need to be applied.
Miscellaneous Itemized Deductions Subject to 2% Threshold and Miscellaneous Itemized Deductions Not Subject to the 2% Threshold Are other expenses like Union Dues, Job Expenses, Gambling Loss and many more expenses.
Most of the itemized deduction categories I listed above will be Tax Tips articles in future months in which there will be more details.