Itemized deductions

Since our last blog, we have discussed to get your tax records in order so you can get your tax returns duly filed in a timely manner, so you would not be subject any failure-to-file penalties. As always, the common question that is asked by taxpayers, when it is time file tax returns, what can I deduct for personal expenses? Just to remind you that the IRS does have a standard deduction for everyone (depending on your filing status), but if your total expenses in the following list is more than your standard deduction, yes it is highly advisable to list, or as we say in the practice “itemize” these expenses, and here is a list of expenses, with a brief explanation on each:

• Medical & Dental Expenses, including health insurance premiums – Now that Obamacare has been duly enacted, your total medical expenses, must be at least 10% of your total income (the threshold used to be 7½%), in order for your medical expenses to be deductible.

• Taxes:

o State income tax withholdings, and any back state income tax payments (excluding penalties and interest) actually paid during the year.

o Real estate taxes actually paid during the calendar year in your primary residence, and any other real estate that you own. Bear in mind that most municipal California governments operate on a fiscal year (beginning on July 1st), So be sure to focus on a calendar year, and not on a fiscal year.

o Personal property taxes. Here in California, only the vehicle license fee part of your annual registration is deductible, because the VLF is based on the value of your vehicle.

• Interest:

o Mortgage Interest. Yes, your mortgage interest is deductible (subject to limitations). Also, you can deduct mortgage interest on your
primary residence and on your secondary residence (e.g. your summer home). In addition, points are deductible, if it was part for the purchase of your residence, otherwise the points would have to spread out or “amortize” during the life or term of the loan.

o Investment Interest: Any margin interest, or any other investment interest, on your stocks, bonds, and/or your brokerage/investment accounts is deductible, up to your investment income.

• Charities, any charitable contribution to a charitable organization is deductible. Bear in mind that you’re limited up to ½ of your total income of the year. Of course always have records, including confirmed letters, from the charitable organization to confirm your donations.

• Casualty & Theft Losses. If any asset (e.g. car, furniture, valuable collection, home, real estate, etc.), is destroyed or stolen, by an “Act of God” then you might claim that as a loss, subject to limitations.

• Unreimbursed Expenses. Any business oriented expenses, that you had to pay, in order to perform your job, as an employee, which you were NOT reimbursed by your employer, is deductible, if these expenses were at least 2% of your total income. Yes that includes mileage on your vehicle, other than commuting to and from home and work.

• Other deductions. Any other expense, so you can produce other sources of non-business income, can be deductible

• Gambling Losses are also deductible, up to your gambling winnings.

There is the itemized list. If you want to see if you can claim any of these itemized deductions, let us know we’ll be happy to help.
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