Don't Mess With Taxes

The Internal Revenue Service IRS is expected to process more than 160 million individual and business tax returns this filing season. Through March 15, the IRS had received nearly 71.6 million individual returns.

Some taxpayers probably put off filing in the hopes that the Tax Relief for American Families and Workers Act would be enacted by Tax Day. Several of its provisions could help both personal and business filers. Whether that will happen is still unclear, as the tax bill that cleared the House has hit a lot of speed bumps in the Senate.

Other taxpayers, however, aren't that concerned about tax law changes. They procrastinate because they itemize their tax deductions and they've yet to collect all the necessary date to fill out their Schedule A, Itemized Deductions.

If you're going to the trouble to itemize, then you want to make sure your amount not only exceeds your potential standard deduction, but does so to the fullest extent.

For you dawdling filers, here are some tips to help you maximize your itemized deductions.

Medical and Dental Expenses
Being sick sucks. Having to pay a lot of out-of-pocket medical expenses is a pain, too. But if you have a lot of medical and dental costs, you might be able to put them to tax deduction use in the first section of Schedule A.

See more tax forms and more about them at Tax Forms 2024.

The goal here is to account for enough medical costs that exceed 7.5 percent of your adjusted gross income (AGI). That means, for example, if your AGI is $100,000, you must have medical expenses that total more than $7,500. And then only the amount over that, counts. Total medical expenses of $8,000 in this example mean a Schedule A claim of $500.

If you're close or just slightly over your percentage threshold, make sure you don't miss any allowable medical costs that could help increase your deduction here.

The good news is that there

You also must make sure that all the costs you claim in this Schedule A section are on the IRS' approved list of qualified medical expenditures.

The good news is that there are many medical expenses that can make you feel better at tax time. This includes the obvious costs, such as copays for physician visits and prescription medications.

Don't forget the travel to the doctor's office or to pick up your Rx. Those miles are deductible. And if your medical trip requires extraordinary transport, be sure to also add in those ambulance service fees.

But wait, there's more. Specialist treatments, which tend to cost more, are added here. This includes, for example, fertility treatments.

Under certain circumstances, expenses for medical weight loss efforts, smoking cessation programs, and even some structural changes to your home can be claimed on this part of Schedule A.

Taxes You Paid 
Residents of 41 states and the District of Columbia pay state tax on the wages they earn. If you're one of them, you can deduct those taxes here. Don't forget your local income taxes; yes, some cities/counties collect them, too, and they're also deductible as an itemized expense.

But now there is a limit.

These state and local taxes used to be a major Schedule A write-off for millions of taxpayers, particularly in high income tax states. The Tax Cuts and Jobs Act of 2017, popularly known as TCJA and/or the Republicans' tax reform law, placed a limit on the amount you can now deduct on your federal return.

Although there's been a consistent effort by some members of Congress to change this law before it expires at the end of 2025, right now the state tax deduction amount remains capped at $10,000.

That 10 grand limit also includes the state and local sales tax deduction you can claim if you live in one of 45 states or Washington, D.C., where sales tax is collected at the state (or district) level. The IRS provides average amounts for each state in the Schedule A instructions so you don't have to hang onto all those receipts.

The cap usually won't be sales tax problem unless you bought a lot of expensive taxed items. In these cases, you'll need the sales document for those major taxable purchases, such as a car or boat, during the year. You can add that general sales tax amount to the total from the IRS table that you claim.

Remember, it's an either/or choice. You can't mix and match sales and income tax deductions. You must choose just one to claim on this section of your Schedule A.

Homeowners also get to write off their annual property taxes. If you have a second home or any other personal-use, not rental, properties, those real estate taxes are claimed here. Some places levy personal property taxes, too, typically on autos and other vehicles. Deduct that amount here.

But once again, your property tax total counts toward the $10,000 state and local taxes (SALT) limit.

Interest You Paid 
Schedule A has two lines for claiming home mortgage interest paid. The first is for the amount reported on your annual Form 1098 or an accepted IRS substitute tax document that you (with a copy to the IRS) get early each year from your lender. The other is for interest not reported on an official form or substitute.

You can claim interest on your primary residence's loan, as well as a second residence as long as the mortgage satisfies the same requirements as the main home.

Under the TCJA, interest on your home equity loan or home equity line of credit (HELOC) also is deductible, but only where the additional borrowed funds are used to, in the revised tax code's words, to "buy, build, or substantially improve the taxpayer's home that secures the loan." Interest isn't deductible when the money borrowed against home equity is used for things such as paying college costs or bucket-list vacations.

Note, too, the margin note on the form that "your mortgage interest deduction may be limited." This refers to the total of your home and second home mortgages, based on when the loans were obtained. For those taken out after Dec. 15, 2017, interest is limited to loans up to $375,000 for single filers and up to $750,000 worth of qualified loans for married couples filing jointly.

If your home loans were obtained before 12/15/2017, the prior tax law's $1 million limit ($500,000 for married filing separately filers) still applies.

If you have private mortgage interest (PMI) and are used to claiming that amount here, you're out of luck for your 2023 return filing. This insurance typically is required by lenders when a home buyer can't make at least a 20 percent down payment on their residential loan. This itemized deduction first appeared in 2006 and was been renewed periodically as part of tax extenders packages over the years. But it was not renewed for the 2022 or 2023 tax years.

Points paid to get a lower mortgage rate, however, remains as an allowable itemized deduction. This option increased as the Federal Reserve raised interest rates to help fight inflation. These added loan application payments — each point is 1 percent of your loan amount — will get a lower mortgage rate.

Investment interest, which is the amount you paid on money you borrowed to buy stocks, bonds and other equities also is deductible in this section of Schedule A.

Gifts to Charity 
Most people don't donate to charity for tax reasons, but if you can claim a deduction for your charitable gift, then by all means do so.

For a couple of tax years (2020 and 2021), this tax break was available directly on Form 1040 to folks who claimed the standard deduction. No longer. The charity donation deduction once again is only available to taxpayers who itemize on Schedule A

Here you'll enter your total amount cash gifts to IRS-approved nonprofits, as well as the value of donations of household goods and clothing, other property, or appreciated stock.

Volunteering doesn't count, but you can count the value of out-of-pocket expenses you incur while giving of your time, as well as the miles you drive your own car for charitable purposes.

And no matter how much or how you give to your favorite charity, it's always a good idea to get a receipt.

Casualty and Theft Losses 
Another provision in the 2017 tax reform bill changed what can be counted in this section of Schedule A.

While the title remains Casualty and Theft Losses, they now must be in connection with major natural disasters to be tax deductible. You enter these costs that are attributable to federally declared disaster in this section.

My earlier post, Considerations in making a major disaster tax claim, has more on itemized disaster deductions. So does IRS Publication 547 and Form 4684 which you'll use to make the claims. You also might want to check out the ol' blog's special disaster resources pages.

Other Itemized Deductions
The Tax Cuts and Jobs Act also eliminated, at least through 2025, the option to claim a variety of miscellaneous expenses that were to a 2 percent of AGI limitation. It kept, however, this Schedule A section where eight other itemized deductions can be claimed.

The expense allowed in this Schedule A section that gets the most attention is gambling losses.

You can claim your losing wagers in this itemized deduction section, but only to the extent of your gambling winnings that you reported on your Form 1040 Schedule 1. Let me repeat that. You can wipe out your winnings that count as taxable income by reporting corresponding losses here, but you cannot use your gambling losses to create a loss of taxable gambling income.

The other seven other itemized deductions that can be claimed here are, for the most part, relatively uncommon and sometimes arcane. They include —

• Casualty and theft losses of income-producing property from Form 4684 or Form 4797;
• Federal estate tax on income in respect of a decedent;
• A deduction for amortizable bond premium;
• An ordinary loss attributable to a contingent payment debt instrument or an inflation-indexed debt instrument;
• Deduction for repayment of amounts under a claim of right if over $3,000 (see IRS Publication 525) ;
• Certain unrecovered investment in a pension; and
• Impairment-related work expenses of a disabled person.

Total Itemized Deductions 
You made it! In this last section, you total up all your allowable Schedule A deductions. It goes on line 17, and also is entered on line 12 of your Form 1040.

In most cases, you'll use your itemized total when it's more than your standard deduction amount. In some cases, however, you might want to itemize even if the total is less. This could happen, for example, if itemizing on your federal return provides a benefit on your state taxes.

Whatever the reason for choosing the smaller itemized amount, let the IRS know that you're making the decision knowingly by checking the box on line 18.

Yes, itemizing deductions is more work, but if you take full advantage of all that Schedule A has to offer, it can really pay off by lowering your tax bill.

And if these suggestions make you want to give itemizing a shot, but you need more time to dig up the supporting documents, no worries. Just file for an extension, then take your time filling out your Schedule A.

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