Use this checklist to find savings before filing your tax returns. These deductions have been allowed by the IRS and upheld in court.
Medical expenses are deductible to the extent that they exceed 10% of your adjusted gross income (AGI) (7.5% if you were born before January 2, 1952). Included…
- Alcoholism and drug/nicotine addiction treatment programs.
- Capital expenditures for home improvements required to accommodate a disability. Examples: Elevators, ramps, modifications to cabinets.
- Chiropractic care.
- Closed-caption television decoder.
- Contact lenses.
- Cosmetic surgery necessary to ameliorate a deformity from a congenital abnormality, personal injury or disfiguring disease—not elective cosmetic surgery.
- Dental fees and dentures—not for cosmetic procedures, such as tooth whitening.
- Eye examinations.
- Health insurance premiums paid with after-tax dollars, including the cost of Medicare Part B and Part D coverage. Self-employed individuals may deduct 100% of their insurance premiums even if they do not itemize their deductions.
- Insulin and prescription drugs.
- Lodging (but not meals) not provided in a hospital while away from home primarily for, and essential to, medical care. Limited to $50 each per night for the patient and a companion.
- Nursing home care required because of a medical condition.
- Premiums paid for long-term-care insurance subject to limitations depending on the age of the taxpayer.
- Prescription contraceptives, legal abortions and vasectomies.
- Psychiatric treatment.
- Seeing aids for the blind, including expenses for Braille publications and guide dogs.
- Telephone equipment for the deaf.
- Transportation to and from hospitals or doctors’ offices. The automobile rate is 23 cents/mile, plus parking fees and tolls.
- Weight-loss programs for the obese.
- Wheelchairs or other special chairs for a disabled person.
Taxes other than federal income, FICA, estate or gift tax generally are deductible. Included…
- Co-op owners can deduct their proportionate share of the building’s taxes.
- Foreign taxes, unless a credit is claimed.
- Personal property taxes.
- Real property taxes paid during the year. (This may be different from the amount paid into your escrow account. Your lender will advise you as to the amount to deduct.)
- State and local income taxes paid or applied during the year, including wage withholding, or state and local sales taxes.
The IRS divides interest into several categories. Personal interest (paid on auto loans, credit card debt, etc.) is not deductible. However, interest on qualified higher-education loans is deductible, subject to AGI and other limitations. The maximum deduction for these loans is $2,500 of interest each year. This is a deduction used in calculating your AGI and is not an itemized deduction.
Mortgage and investment interest expenses typically are deductible, subject to these limits…
- Co-op owners may deduct their share of mortgage interest paid by the association.
- Interest expense paid on loans held specifically to purchase taxable investments is deductible to the extent of net investment income. Excess interest expense is carried forward indefinitely.
- Interest paid for a loan on a boat that has living, sleeping and eating quarters.
- Mortgage interest expense incurred on as much as $1 million in home acquisition debt (or $500,000 if married and filing jointly). The $1 million threshold can be reached using mortgages on only your primary residence and one other personal residence. This includes debt incurred within 90 days of the purchase or major improvement that is secured by the principal residence and/or one additional residence.
- Mortgage insurance premiums for those with income below set levels.
- Mortgage interest expense incurred on home-equity loans of up to $100,000 (or $50,000 if married and filing jointly). Generally, the proceeds can be used at the taxpayer’s discretion without risking the interest being classified as nondeductible. One exception is if the loan is taken out to purchase tax-exempt/municipal bonds, which would then classify all home-equity loan interest as nondeductible.
- Points paid on your principal residence generally are deductible immediately, unless you choose otherwise.
- Points paid on a refinance generally are amortized over the life of the loan.
Casualty and Theft Losses
Casualty and theft losses are deductible if they result from a sudden, unexpected and unusual cause to the extent that they exceed 10% of AGI and $100 for each occurrence and cannot be reimbursed by insurance. (The 10% floor does not apply to certain disaster losses). Included…
- Automobile accident if not caused by your willful act.
- Loss of a bank account due to insolvency of the bank.
- Fire, flood and storm damage, including hurricanes and tornadoes.
- Repairs to home and appliances because of damage due to corrosive drywall (known as Chinese drywall).
- Replacement cost of trees and shrubs damaged by storms or fires.
Contributions to qualified charities are fully deductible up to 50% of your AGI. (You can carry over any nondeductible excess for up to five years.) Included…
- Automobile expenses for volunteer activities computed at 14 cents per mile plus parking fees and tolls.
- Cash contributions. (Either canceled check, bank statement, credit card statement or acknowledgment is required for all donations up to $249 and written acknowledgment from the charity for contributions in excess of $249.)
- Fair market value of clothing and other household items donated to charity. A qualified appraisal is generally required if the value of donated items exceeds $500.
- Gifts of capital gains property, such as appreciated stock. The current-year deduction is limited to 30% of AGI. Any excess can be carried over for up to five years.
- Out-of-pocket expenses incurred while engaged in volunteer activities, as long as they are properly substantiated.
- Deductions for charitable contributions of used motor vehicles, boats and airplanes now generally are limited to the amount the charity receives upon the vehicle’s sale and not the fair market value on the date of donation. Upon sale of the property, the charity is required to report to the taxpayer within 30 days the amount of proceeds realized on the sale. Charities are required to give a copy of written acknowledgments of such donations to the IRS.
- Appraised value of the vehicle donation may be used when the charitable organization uses the donated item in its charitable activity.
Miscellaneous itemized deductions generally are deductible to the extent that they exceed 2% of your AGI. Included…
- Accountants’ fees.
- Costs for job-related uniforms.
- Fees paid for professional journals.
- Investment management and custody fees for taxable investments.
- Job-related education expenses.
- Job-search expenses for a new job in your present occupation, including…
- Travel to and from job interviews, including cab fare and/or auto expenses.
- Costs for preparing, typing, printing and mailing résumés.
- Legal expenses incurred for the production of income or the management, conservation or maintenance of income-producing property.
- Legal expenses incurred in collecting alimony under a divorce decree are deductible. However, legal expenses incurred in a divorce paid by one spouse in resisting the other’s monetary demands are nondeductible personal expenses.
- Tax-preparation fees.
- Union and professional dues.
Other deductions that a taxpayer can benefit from are…
- Teachers can deduct as an adjustment to gross income up to $250 for unreimbursed expenses for equipment used in the classroom (books, computer equipment and supplies).
- Employees and self-employed individuals may deduct as an adjustment to gross income the reasonable expenses of moving themselves and their families if the move is related to starting work in a new location. Deductible expenses include (1) transportation of household goods and personal effects and (2) travel (lodging but not meals).
- Legal fees and court costs paid in conjunction with discrimination or “whistle-blowing” cases after October 22, 2004, are deductible as adjustments to gross income and not as itemized deductions.
- All properly substantiated gambling losses are fully deductible to the extent that they are used to offset that year’s gambling winnings.
- Tuition and fees for higher education up to $4,000 (income limits apply).
Resources to help you prepare your tax returns:
IRS Publication 501, Exemptions, Standard Deduction, and Filing Information
IRS Publication 502, Medical and Dental Expenses
IRS Publication 526, Charitable Contributions
IRS Publication 529, Miscellaneous Deductions
IRS Publication 547, Casualties, Disasters, and Thefts
IRS Publication 936, Home Mortgage Interest Deduction
IRS Publication 970, Tax Benefits for Education
All the above publications are available through the IRS’s Web site, IRS.gov or by calling 800-TAX-FORM.