In order to determine whether to itemize, make a list of tax deductible items. Add items on the list and compare the total to the current year standard deduction amount. There is a higher standard deduction for taxpayers who are blind, over 65 years of age, and/or disabled. Standard deduction amounts are found on the current year Internal Revenue Service Form 1040 and are based on taxpayer filing status. In 2009, the standard deduction for married taxpayers was $11,400 and $5,700 for singles. If the total tax deductible items gives a larger amount than the standard deduction, the better choice is to itemize.
Make a list of all medical and dental expenses such as prescription medication, lab, clinic and hospital care. Add the supplemental part of Medicare B insurance and premiums paid for Medicare Part D. Include expenses for eyeglasses, contact lenses and surgery to improve vision. Lodging expenses while away from home to receive medical care -- no more than $50 a night -- should be included. Add travel costs to get medical care. Include the cost of hearing aids, guide dogs and wheelchairs, including maintenance costs.
Add real estate tax, state and local income taxes, state and local sales taxes, and vehicle license fees (not the entire cost of vehicle registration). Most nonfederal taxes paid are deductible on a federal tax return. Federal income and most excise taxes, Social Security, Medicare, federal unemployment, railroad retirement taxes and customs duties are not deductible. Federal estate and gift taxes, tax on gasoline, car inspection fees, assessments for sidewalks or other improvements to property owned, tax paid for someone else and license fees (such as marriage, driver's, dog) are not deductible.
Add qualified home mortgage interest to the list. Interest must come from loans secured by a main home or second home to be considered qualified interest. Include interest on first and second mortgages, mortgages to refinance and home equity loan interest -- as long as loan proceeds are used to buy, build or improve a home. As long as it provides sleeping space, a bathroom and cooking facilities, a home can be a house, cooperative, condominium, mobile home, boat or similar property.
Include gifts to charity. Generally, cash and noncash donations to religious, government or community charities are deductible. For noncash donations, calculate the value of what items sell for, not their replacement cost. Include cash donated to organizations dedicated to finding cures for or to help people with birth defects and specific diseases.
Add losses loss due to theft, vandalism, fire, storm or similar causes. Include the cost of car, boat and other accidents. Add money lost in a financial institution if lost due to insolvency or bankruptcy of the institution. Add costs to prove the loss occurred -- for example, appraisal fees, cost of photographs and police reports.
Include current year employee business expenses that are ordinary and necessary for the trade or business of the employee. Examples include uniforms (or clothing not suitable for any other use) and the cost to keep them clean. Medical exams required by an employer, tools that last less than a year and union dues are included in this category. Claim business-related expenses for travel, entertainment, gifts and transportation. Lodging and 50 percent of meals and entertainment can be claimed. An expense does not have to be required to be considered ordinary and necessary.
Include miscellaneous itemized deductions such as home office expenses, if the home office is not for the convenience of the employer. Include gambling losses up to the extent of gambling winnings. Add credit card convenience fees; they are included in this category. Also add professional tax preparation fees in this category.
If itemized deductions are not used, deduct employee business expenses on IRS Form 2106 instead.
Use actual amounts rounded to the nearest dollar. Round 49 cents and less down; round 50 cents and more up. Using an even dollar amount such as $20, $100, $150 may cause the tax return to be flagged by the IRS and increase the likelihood of an audit.
In the event of an audit, IRS requires documentation for all deductions.
For cash donations of more than $250, get a letter from the organization and keep it in a safe place in case the IRS audits the return.
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