There are a number of allowable deductions:
* Medical expenses, to the extent that the expenses exceed 7.5% of the taxpayer's AGI. (e.g., a taxpayer with an AGI of $20,000 and medical expenses of $5,000 would be eligible to deduct $3500 of their medical expenses ( 20,000 X .075 = 1500; 5000 - 1500 = 3500 ).) The 7.5% floor means that most taxpayers are unable to take advantage of the medical expense deduction. Allowable medical expenses include:
o Payments to doctors, dentists, surgeons, chiropractors, psychologists, counselors, physical therapists, osteopaths, podiatrists, home health care nurses, cost of care for chronic cognitive impairment
o Premiums for medical insurance (but not if paid by another, or with pre-tax money)
o Premiums for qualifying long-term-care insurance, depending on the taxpayer's age
o Payments for prescription drugs and insulin
o Payments for devices needed to treat or compensate for a medical condition (crutches, wheelchairs, prescription eyeglasses, hearing aids)
o Mileage for travel to and from doctors and medical treatment
o Necessary travel expenses
o Non-deductible medical expenses include:
+ Over-the-counter medications
+ Health club memberships (to improve general health & fitness)
+ Cosmetic surgery (except to restore normal appearance after an injury or to treat a genetic deformity)
* State and local taxes paid, including:
o Income taxes (or, alternatively, state and local general sales taxes[2])
o Property taxes (assessed by reference to the value of the property)
o but not including:
+ Use taxes
+ Excise taxes
+ Fines or penalties
* Mortgage interest expense on debt incurred in connection with up to two homes, subject to limits (up to $1,000,000 in purchase debt, or $100,000 in home equity loans)
o also, points paid to discount the interest rate on up to two homes; points paid upon acquisition are immediately deductible, but points paid on a refinance must be amortized (deducted in equal parts over the lifetime of the loan)
o also private mortgage insurance premiums through 2010
* Investment interest, up to the amount of income reported from investments (the balance is deferred until more investment income is declared)
* Charitable contributions to allowable recipients; this deduction is limited to either 30% or 50% of AGI, depending on the characterization of the recipient. Donations can be made as money, or in the form of goods. The value of donated services cannot be deducted as a contribution. Reasonable expenses necessary to provide donated services can, however, be deducted (such as mileage, special uniforms, or meals). Non-cash donations valued at more than $500 require special substantiation on a separate form. Non-cash donations are deductible at the lesser of the donor's cost or the current fair market value. Eligible recipients for charitable contributions include:
o Churches, synagogues, mosques, other houses of worship
o Federal, state, or local government entities
o Fraternal or veterans' organizations
o Non-eligible recipients include:
+ Individuals
+ Political campaigns or political action committees (PACs)
* Casualty and theft losses, to the extent that they exceed 10% of the taxpayer's AGI (in aggregate), and $100 (per event, $500 starting tax year 2009)
* Gambling losses, but only to the extent of gambling income (For example, a person who wins $1,000 in various gambling activities during the tax year and loses $800 in other gambling activities can deduct the $800 in losses, resulting in net gambling income of $200. By contrast, a person who wins $3,000 in various gambling activities during the year and loses $3,500 in other gambling activities in that year can deduct only $3,000 of the losses against the $3,000 in income, resulting in a break-even gambling activity for tax purposes for that year -- with no deduction for the remaining $500 excess loss.)
Itemized deduction - Wikipedia, the free encyclopedia
Why is a business expense more important than a non-business expense?
