The IRS Deductions Blog

Archive for the ‘Standard Deductions’ Category

Question: Can you itemize your state taxes on your federal tax return?

I hear so much about how you won’t have enough to itemize to overcome the standard deduction if you don’t own a home.

However, I paid almost $4000 in state taxes in 2006, which is close to my standard deduction of $5150 (single). I’ve heard that you can itemize state taxes. Does that mean many people can have enough to itemize (using their state taxes) without owning a home?

Answer: Yes! you should try to use Schedule A to better the standard deduction. It requires digging through your records but could result in some savings. Re: state taxes — there was a last-minute change after the tax instruction booklets were printed (details in Publication 600 on IRS site). You can deduct either state AND local INCOME taxes OR state & local SALES taxes — but NOT both. Presume your $4,000 paid is income, not sales tax (unless you bought some REALLY expensive items and/or live in a high sales tax area). Now, what else can you deduct???

Under “Medical/Dental” you need to be able to show payments ‘more than usual’ — IRS decided that ‘more than usual’ is more than 7.5% of your “adjusted gross income” — see line 38 on Form 1040 (you can’t use 1040A or 1040EZ if you wish to itemize deductions and not take the standard deduction). If you pay for health insurance, those premiums should give you a good start on hitting the 7.5%. Then add in payments to doctors, dentists, prescriptions, etc. — you should have checks/credit card statements/cash receipts to document your costs. Another overlooked medical deduction is for travel to medical appointments — you get $0.18 per mile. It can add up to several hundred dollars if you travel some distance and/or have lots of appointments. When you gather paperwork for doc/dentist visits, make note of the number of visits to each. Then use Mapquest to find out the one-way mileage, double it, multiply by the number of visits and multiply by $0.18. If by chance, you also pay premiums for long-term care insurance, they’re deductible too (up to a limit, depending on your age — see page A-2 in the 1040 instructions).

Under “Gifts to Charity” you can deduct contributions to charities, church, United Way, college, etc. However, you must subtract the value of any ‘benefit’ you receive (e.g., you gave $50 to PBS, but got a CD valued at $12 — you can only deduct $38). Again, you’ll need to research your checkbook/credit card statements. You also get a mileage deduction for travel for volunteer work at such organizations — a lower amount, $0.14. It’s gotten much trickier to show contributions of “non-cash” — e.g. bags of clothing to Goodwill. Read up on this!

I’m not experienced with the “Job Expenses…” deduction, but like the “Medical…” your expenses must be ‘more than usual’ — this time it’s a lower number: 2% of your line 38.

Lastly, try to set a goal of bying a house as soon as you can. It’s the biggest and best investment for most people (NO, I’m not in real estate). B/c of the tax breaks you see on Schedule A, you can deduct all the mortgage interest you pay and the real estate taxes. Once you buy, you can have less tax taken out of your paycheck, which will give you a little more money to pay the mortgage. For example, if you take out $100,000 mortgage at 6% for 30 years, your monthly payment would be about $600. (NO sub-prime lender, pleazzzze). Of that, about $500 is interest — $6,000 a year. So if your line 38 is $50,000, you’re in a 25% tax bracket and that interest deduction makes for a $1,500 savings on taxes per year — $125 a month to help pay that mortgage. If your line 38 is $80,000, you’re in a 28% bracket and the same mortgage saves you $140 a month in taxes. Then, throw in real estate taxes — say $3,000 a year, and you pick up another $62-$70 per month. Together, that’s $187-$210 a month that you can lower your withholding and use the extra money in your paycheck to pay the mortgage. And that’s just the federal tax. If you also pay state/local taxes and the tax forms allow for mortgate/real estate tax deuctions, you’ll have savings there, too. Hope I’m being clear…

GOOD LUCK!

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Beacon Hill Roll Call

Beacon Hill Roll Call has obtained the official list from the state treasurer’s office of the “per diem” travel, meals and lodging reimbursements collected by the 40 state senators in 2009. The list reveals that senators have collected a total of $90,502.

See how easy it is to file a return with TaxACT!

Released in June 2009, the Nokia N97 has a sleek and smooth look and features bound to rock any pocket. It’s 5 megapixel camera trumps most phones out on the market, and the N97’s basic features are up to the industry standard. There’s not only the basic GPS, browser, and messaging, but also video and photo editing, document viewing, voice control, music and video players, and a radio function, something rare in a phone. Surprisingly, Nokia released the N97 without a carrier partner, unlike the Apple iPhone and AT&T partnership. As such, the customers will be paying $699 for the phone and extra for a carrier plan.

Unlocking the Nokia N97 simply takes out the restrictions programmed into the phone by the carrier. If you buy the phone through AT&T, they will first lock up your phone and only allow it to be used on the AT&T network. However, if you want to get pass this, you will want to get an unlocked Nokia N97. Mostly, you’ll be saving a TON of cash if you unlock it, because it’s known that many networks tend to bind customers to expensive plans. The unlocking process takes about three minutes. You can learn how to unlock the Nokia N97 by a simple search online.

The Nokia N97 is seen to be a direct rival to the iPhone, and it’s quite easy to see how that happens. The N97 camera already beats out the Apple counterpart; 5 megapixels to the N97, 3 megapixels to the iPhone 3GS. While Apple struggled to deal with the video and “upgraded” camera part during its 3G stages, Nokia released the N97 with every single camera feature that the 3GS has, autofocus and all. Something very nice to see is the battery life that the N97 has. You can’t go wrong with 400 plus hours of standby, up to 9.5 hours of talk time, and 40 hours of music playback. The 3GS falls 100 hours short in standby, and 10 hours short in music.

Available only in a 32 gig option (might as well take it), the Nokia N97 costs around $700, and that’s without any service plan. Pricey, but this phone is seriously one of the closest to beating the iPhone in its own game, and if you can unlock it, you will save a few bucks on the carrier plan. The features, like the 3.5 inch touchscreen display, combined are simply the aces of Nokia’s Nseries. Get the N97 if you want a clean phone with features that rival the best of the best; in the end, the prices match up pretty well and it comes down to preference at the final tally.

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How To Calculate Student Loan Payments Under New Obama Plan

This income-based repayment calculator can estimate student loan payments.

Question: IRS guideline on property tax. Can I deduct 2 years of property taxes in the same year?

I currently do not have an escrow account.
My Itemized Deductions each year are shrinking and are fast approaching the standard deduction allowed by the IRS.

IF I pay my 2007 property taxes in Jan. 2008 and my 2008 property taxes in December of 2008. Can I deduct the sum of both on my 2008 Federal tax return?

Answer: Sounds like you are talking about personal income tax and not business income tax, and if I am correct the answer is Maybe.
The key to the answer is –will all your deductions on Schedule A exceed the standardized deduction for your filing status. In 2006 it was $7,500 for single and married filing separate, $10, 300 for married filing jointly, and $7,550 for head of household. So if all your home interest, state and local taxes and charity gifts, misc. deductions, casualty/theft losses, and medical(limited amount deductible) does not exceed the standardized deduction, with the property tax payments all two years, you can consider it not deductible–because you want to take the largest deduction. Schedule A or the standard. Also, if your total itemized deductions exceed $150,500(75,750 if filling married separate), the deduction maybe limited. So there is a low and high range at which you fit into to take advantage of paying both years of property taxes in a single year.

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Bigger Tax Breaks On Your ‘09 Return

The arrival of documents like W-2s and 1099s signals it’s time to get your tax return in gear.

The IRS Beaten into Submission by Scientology

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Across the USA News from every state

News from every state

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Question: Are the payroll tax and Massachusetts income tax deductible from ferderal income tax?

I know student loan interest, health care, and public transportation are tax deductible.

This in total takes $2,800 off my annual salary. There is also about another $9,000 for personal exception and standard deduction, and another $450 from losses in the market last year.

I just wanted to know if mass income tax of 5.3% is deductible and the 7.65% payroll tax are deductible.

Also are any federal, payroll, student loan interest, standard deduction, personal exception, etc.. deductible for massachusetts income tax? I haven’t been able to find any info on this while searching.

I guess I should add, is the personal exception different from the standard deduction?

Can I do Itemized Deductions and still use the $3,500 personal exemption?

Answer: You can deduct your state income tax paid if you itemize. You cannot deduct the payroll tax on your federal tax return. Half of your Medicare and Social Security withholding can be deducted on your Massachusetts tax return up to $3,000.

You can take your student loan interest as an adjustment on your 1040, not as an itemized deduction.

Health care can be deduction as long as it is greater than 7.5% of your AGI. If your health insurance premiums are taken out of your taxes pretax, you cannot deduct them as they were not subject income tax.

You cannot take both itemized deductions and standard deduction. It is one or the other.

Public transportation is NOT a deduction unless it was for work related activities and NOT commuting. It is also subject to 2% of AGI floor.

Federal taxes are not deductible on the MA tax return.

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Getting the Most Out of the Mileage Deduction (Tax Saving Reports for Small Businesses, 010) This small business report will teach you why the automobile deduction is the most under-utilized of all deductions and how to get the largest auto deduction allowable….

Many changes in tax forms this filing year

When taxpayers sit down to file their 2009 returns, they will find plenty new to deal with as they look for refunds or get ready to pay the Internal Revenue Service by April 15.