Standard Deduction• A set dollar amount based on filing status that is
subtracted from taxpayers income.o Lowers tax liabilityo Important to choose the correct filing status
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Filing Status Standard Deduction 2014
Single $6,200
Married Filing Separately $6,200
Head of Household $9,100
Married Filing Jointly $12,400
Qualified Widow(er) $12,400
Itemized Deduction• A taxpayer may use eligible expenses in place of
the standard deduction to lower their taxable income and possibly their tax liability.
• Taxpayers will take the greater of their itemized expenses or the standard deduction
• State and local tax refunds become taxable income for the following tax year.
• If MFS, both parties must agree to both take the standard deduction or both take itemized deductions
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Medical Expenses• Can claim amount that exceeds
o 10% of AGI or o 7.5% if over 65 years old
• Includes: o Doctor, dentist, vision, prescriptions, hospital, mileage to
the doctor for sickness/checkups, long term care insurance, etc.
o Allowable expenses for:• Taxpayer and Spouse• Dependents claimed on the return• dependents they would have claimed except for
income higher than $3900 or because of rules for children of divorced or separated parents
• Excludes: o Non-prescription drugs, elective surgery costs, diet food,
weight loss program (unless prescribed by doctor), etc. 7
Taxes• Includes:
o State and Local Taxes, Real estate taxes paid, personal property tax
• Excludes: o License fees for cars, Services that are included in Real
estate taxes paid (i.e. sewer, trash pickup)
• Tip: o Any local and state tax refunds received when a person
itemizes, must be claimed as income in the following tax year since it was taken as a deduction.
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Interest Paid• Includes:
o Mortgage Interest on 1st and 2nd home, Points paid when mortgage taken out, mortgage insurance premiums - all will be shown on 1099 statement from bank
• Excludes: o credit card, pay day loan interest paid
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Gifts to Charity• Includes:
o Cash, Non-Cash donations (up to $500)o Volunteer mileage or gas, parking, tolls, required uniform
expenses (need receipts)
• Need receipts to show donations• Non-cash donations of $500 or higher are out of
scopeo Refer to a professional
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Miscellaneous Expenses
• Includes: o Employee expenses (union dues, uniforms, etc), Tax
preparation fees paid in previous year, Investment expenses including cost of safe deposit box for investment storage, financial publications, gambling losses, etc
• Form 2106 may be needed for employee expenses
• First 2% of AGI expenses are excluded
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Exercise• $1,259 in out of pocket medical paid• $1,120 in real estate taxes• $2,003 in mortgage interest paid• $1,800 paid to their church• $200 in gambling losses• $178 local tax paid• $535.50 state tax paid
• The taxpayer will file single and has an AGI of $17,850. $850 of that is gambling winnings. Should they itemize or take the standard deduction?
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Tips for Itemizing• Walk through the exercise if client has several of
the eligible expenses o sometimes some expenses like local taxes and state
taxes paid are overlooked to push the taxpayer over standard amount
• Some medical expenses carry over to the state return to benefit the taxpayero Include all medical even if it doesn’t meet the 10% or
7.5% rules.
• Publication 4012 has detailed charts for walking through itemizing as a helpful reminder
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