#MIDDLEBURY
by Mark A. Burns
In previous columns, we discussed certain tax deductions. With the deadline approaching for filing 2016 tax returns, it is a good time to discuss the overall topic of taking the standard deduction versus itemizing your deductions.
Generally, you are allowed to reduce your tax liability by taking either the standard deduction on your tax return or your actual deductions, whichever is higher. Taking actual deductions is called “itemizing” and Schedule A is attached to Form 1040 for this purpose.
So how much is the standard deduction? For 2016, the amount is $6,300 if you are single or married filing separate, $12,600 if you are married filing jointly and $9,300 if you are filing as head of household. Also, if you are over 65 or blind, your standard deduction will be higher than that shown above. And these amounts may be higher in the future due to inflationary increases or possible overall tax reform under the Trump administration.
Now if you have actual itemized deductions higher than the standard deduction, you are allowed to take the higher amount. Allowable deductions include home mortgage interest (including any points paid, which in some cases may have to be spread out over the life of the mortgage), investment interest, real estate taxes, state income taxes (or sales tax paid if higher), contributions to IRS-approved charities (but not political donations), personal property taxes (e.g., car taxes here in Connecticut), medical expenses (assuming not reimbursed by insurance coverage and if they exceed a specified percentage of your adjusted gross income [AGI]), certain casualty or theft losses, and gambling losses to the extent you are reporting gambling winnings.
In some cases, the amount of the above deductions you will be allowed to take on your tax return may be limited by certain item-specific rules.
In addition, certain expenses fall into a category called “Miscellaneous Itemized Deductions” and are allowed to the extent their total exceeds 2 percent of your AGI. These include unreimbursed “ordinary and necessary” business expenses incurred as a W-2 employee, union dues, job search expenses, certain job education expenses, tax preparation fees, safe deposit box fees, and investment fees incurred on non-retirement accounts.
One exception to the general rule that you can take the higher of either the standard deduction or itemized deductions is if you are married but filing separate tax returns. In this case, if one spouse itemizes, then the other spouse also must itemize, even if that amount is zero – i.e., one spouse cannot file separate and take all the deductions on Schedule A while the other spouse takes the standard deduction.
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Mark A. Burns, M.B.A., is a C.P.A. with Diversified Financial Solutions PC in Southbury. He can be reached at 203-264-3131 or Mark@DFSPC.biz.
