Standard Deduction (4012 Tab F)

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Flora Taylor
5 years ago
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1 Standard Deduction (4012 Tab F) $$ amount based on Filing Status (1040 Section 1) Subtraction from a taxpayer s AGI The idea is that it s the amount of money the IRS determines you used to live (expenses) Reduces the amount of income that is taxed Less income that is taxed = less tax to pay

2 Itemized Deductions Lesson Objectives: Identify when a taxpayer should take their Itemized Deduction (over the Standard Deduction) Know the qualifying expenses to claim as an itemized deduction Know where to input all qualifying expenses into TaxSlayer Locate Itemized Deduction assistance in 4012

3 Itemized Deductions Taxpayer has choice to use Standard Deduction (based on their filing status) or to use their specific Itemized Deductions, whichever is higher. Qualifying expenses include: Medical and dental expenses Taxes paid Mortgage interest/mortgage insurance premiums Gifts to charity Appear on a Schedule A what is a schedule again?

4 Standard vs. Itemized Deduction $50,000 AGI *Head of household $9,350 (Standard deduction) with 1 dependent = $40,650 $8,100 (2 exemptions, $4,050 each) = $32,550 X 15% tax rate = $4,883 tax liability

5 Standard vs. Itemized Deduction $50,000 AGI - $11,250 (Itemized deduction) = $38,750 - $8,100 (2 exemptions) = $30,650 X 15% (tax rate) = $4,598 (tax liability) $285 less tax! Itemized deductions: Medical expenses = $6,000 How much would qualify? Real estate taxes = $1,950 State income tax = $550 Mortgage interest = $6,500 Mortgage insurance = $950 Charitable contributions = $300 Checks paid to church $200 Donation to Goodwill $100 = $11,250

6 Medical and Dental Expenses Many unreimbursed medical/dental expenses and eligible long-term care premiums paid during tax year qualify List of all qualifying medical expenses in Pub 17 page 147 Includes expenses paid by taxpayer for themselves, their spouse, and individuals who qualify as taxpayer s dependent (s) Only each dollar of qualifying expenses that exceed 10% of taxpayer s AGI is applied to itemized deduction total 10% x AGI $50,000 = $5,000 (minimum amount of expenses) 7.5% if either taxpayer or spouse is 65+ Even if amount lower, enter it in may count for State return

7 Taxes Paid Taxpayers may deduct certain taxes imposed on them that they paid during the tax year: State and local taxes, Either Income or Sales tax (in Oregon it will only be income taxes) Real Estate taxes Found on Form 1098 Box 5 or on bill sent to taxpayer by the county Can also look on portlandmaps.com

8 Mortgage Interest and Insurance Premiums Certain types of interest are deductible, including home mortgage interest Generally the deductible amount is found on Form 1098 Only taxpayers legally liable for the debt can deduct the interest Qualified mortgage insurance premiums are deductible Also found on Form 1098 Sometimes nothing listed, though taxpayer did pay must inquire about this

9 Form 1098 Mortgage Interest Statement

10 Contributions to Charity A donation or gift to a qualified charitable organization may be deductible if the taxpayer itemizes Use to check if organization qualifies Many gifts are not deductible, including: Direct contributions to an individual Cost of raffle, bingo, lottery tickets Value of person s time or service Charitable contributions (as well as medical expenses) do not help a taxpayer if he or she does not itemize

11 Contributions to Charity There are two types of charitable contributions Cash contributions: any donation paid with cash or check Non-Cash contributions: donation of goods (such as clothing, household wares, etc.) Up to $500 total non-cash donations in-scope for VITA Taxpayer determines worth of donated goods Taxpayer must have (and keep) records/receipts of donations

12 Miscellaneous Deductions There are other types of deductible expenses for taxpayers who itemize their deductions: Unreimbursed employee expenses such as: Job travel Union dues and fees Uniforms not adaptable to general use Small tools and supplies used for business Employment-related educational expenses Tax preparation fees Gambling losses to extent of gambling winnings Taxpayer must have record of their losses

13 Let s go to Erik Hernandez s return!

Itemized Deductions. Taxpayer(s) can use whichever is most beneficial Schedule A on 1040 Form what is a schedule again?

Itemized Deductions. Taxpayer(s) can use whichever is most beneficial Schedule A on 1040 Form what is a schedule again? Itemized Deductions Taxpayers have the choice to use the IRS s Standard Deduction (based on their filing status) or to use their specific Itemized Deductions including: Medical and dental expenses Taxes