Knowing and clearing tax deduction threshold hurdles
Saturday, October 15, 2011
Maximizing itemized deductions can really cut a tax bill.
Sometimes, though, the requirements to claim some deductions make getting the most out of Schedule A difficult.
Two areas on that form, medical and dental expenses and job expenses and certain miscellaneous deductions, have to exceed a certain amount or they are of no use.
You must have eligible medical and dental costs that are more than 7.5 percent of your adjusted gross income.
As for the job related and miscellaneous itemized write-offs, the AGI hurdle is 2 percent.
Note that the key here is that your costs exceed these percentages.
If your AGI is $50,000 you've got to have more than $3,750 in medical deductions and more than $1,000 in miscellaneous claims.
If your medical claims total $4,000, you can only deduct $250. Same for miscellaneous expenses that come to $1,100; then you only can use $100 on your Schedule A.
There are two ways to get over these itemized deduction hurdles.
The first move is to make sure you don't miss any IRS-allowable deductions in these areas.
Maximizing medical expenses: Toting up co-pays and treatments that your insurance doesn't pay for are just the beginning when it comes to medical expenses. You also can claim:
- Travel costs to get to and from medical treatments,
- Insurance payments from already taxed income, including a portion of long-term care premiums,
- Alcohol- or drug-abuse treatments,
- Laser vision corrective surgery,
- False teeth, hearing aids, crutches, wheelchairs and guide dogs for the blind or deaf,
- Weight loss programs that a physician deems medically necessary. Note the doctor's requirement. Simply signing up for Weight Watchers because you want to shed a few pounds before your high school reunion won't cut it with the IRS, and
- Other medically necessary costs prescribed by a physician.
That last one can include such things as your doctor telling you that you need to add a humidifier to your home's HVAC system to ease your child's asthma. In that case, the cost could be at least partially deductible.
Some disability related home improvements also could count, such as adding ramps and widening doors for wheelchair access.
Just don't go overboard. These structural changes are deductible medical costs but only to the extent that they don't add value to your home.
Making the most of miscellaneous claims: There also are many miscellaneous costs that could help you reach and exceed the 2 percent threshold.
Be sure to count unreimbursed employee expenses, certain job hunting costs and investment related expenses, such as the fee for the safe deposit box where you keep your stock certificates.
Even the cost of doing your taxes, such as accountant fees or the price you paid for your computer tax preparation software, can be included here.
Bunching your expenses: You also can, when possible, time your expenses to get the most out of them. This is known as bunching.
Say that a taxpayer with the hypothetical $50,000 AGI finds that by midyear he had accumulated medical costs of $3,000. By scheduling some elective treatments, such as Lasik surgery, and getting his son's braces fitted before the end of the year, he would easily exceed the $3,750 deduction hurdle.
A bunching strategy also can work the other way.
Say that as the tax year was wrapping up, this taxpayer found that he had minimal medical expenses. He also discovers that his planned health care related expenditures will barely get him over the 7.5 percent requirement.
So instead of having the work done this tax year, he pushes it into January, giving him a head start on the next year's medical expenses claims.
If you're working on your 2010 return this weekend so you can get it filed by the Monday, Oct. 17, deadline, check your tax records to see if you have enough miscellaneous or medical itemized expenses to make them worth claiming.
If not, look at how you can make the most of them for the 2011 tax year.
Final tax-filing tips: Did you miss any of the previously posted last-minute filing tips? You can find them at the special Countdown to Oct. 17, 2011, blog page.
You also might find these items of interest:
Great point, Steven. The dreadful AMT screws up a lot of things. It needs to be one of the first things to go when (if) Congress ever gets around to real tax reform. Thanks for reading, you kind words and good comment.
Posted by: Kay | Saturday, October 15, 2011 at 02:46 PM
This is an excellent easy to read guide to the bunching of itemized deductions and tax strategies generally. Your readers should also take into account the Alternative Minimum Tax implications and "run the numbers" under Form 6251 when engaging in these tax strategies. For example, prepaying of state income taxes many not help once the AMT is taken into account. Hope this is of aid to your readers. Great job here in laying this out in an easy to understand fashion.
Posted by: Steven J Fromm, Esquire, LLM | Saturday, October 15, 2011 at 09:48 AM