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Tax Filing Season FAQ — Itemized Deductions


Should I itemize or claim the standard deduction? | Top

Add up your various deductions — such as charitable contributions, mortgage interest, real estate taxes, state income taxes and miscellaneous expenses — and see if they exceed your standard deduction. If they do, you should consider itemizing. For the 2010 tax year, the standard deduction is $5,700 for single taxpayers; $11,400 for joint filers; $8,400 for heads of household; and $5,700 for married couples filing separately.

Can I deduct the cost of transportation to get to and from work? | Top

You cannot deduct the costs of taking a bus, trolley, subway or taxi, or of driving a car between your home and your main or regular place of work. These costs are personal commuting expenses. You cannot deduct commuting expenses no matter how far your home is from your regular place of work. You cannot deduct commuting expenses even if you work during the commuting trip.

Can I deduct my parking fees? | Top

Fees you pay to park your car at your place of business are nondeductible commuting expenses. You can, however, deduct business-related parking fees when visiting a customer or client.

What's included in miscellaneous itemized deductions? | Top

Miscellaneous itemized deductions include three categories:

  • Unreimbursed business expenses, such as business travel costs, 50 percent of business meal and entertainment expenses and dues to union or professional organizations
  • Investment-related expenses, such as safety deposit box rental fees or fees paid to a financial planner
  • Tax preparation and planning fees

Keep in mind, however, you can only deduct those miscellaneous expenses that exceed, in total, two percent of your adjusted gross income. For an explanation of deductible and non-deductible miscellaneous expenses, reference Publication 526.

What types of medical expenses are deductible? | Top

The obvious deductible expenses are medical insurance, doctor, dentist and hospital bills. But other expenses, such as the cost of transportation to and from medical facilities, are also deductible.

You also may be able to deduct items such as hearing aids, dentures, contact lenses, prescription drugs, insulin, psychotherapy, nursing home costs, home health care, long-term care insurance and hospitalization.

Reference Publication 502 (PDF) to view a list of allowable medical expenses.

Is the interest amount that we paid to the IRS deductible? | Top

No, only mortgage or investment interest is deductible on Schedule A. Interest paid to the IRS is considered personal interest and nondeductible. It would be the same as interest on a credit card or automobile loan.

I made a personal loan of $3,500 to a friend. She declared bankruptcy after only paying me back $500. Does the IRS allow any provision for my loss? | Top

If someone owes you money you cannot collect, you have a bad debt. There are two kinds of bad debts — business and non-business. Bad debts are deductible only if the amount owed has been lent or previously included in your income. A business bad debt, generally, is one that comes from operating your trade or business.

All other bad debts are non-business. Non-business bad debts must be totally worthless to be deductible. You cannot deduct a partially worthless non-business bad debt. You must establish you have taken reasonable steps to collect the debt and that the debt is worthless. You may take the deduction only in the year the debt becomes worthless. A debt becomes worthless when there is no longer any chance the amount owed will be paid. You do not have to wait until the debt comes due to determine if it is worthless.

A nonbusiness bad debt is reported as a short–term capital loss in Part 1 on Form 1040, Schedule D (PDF). It would be subject to the capital loss limitations. A nonbusiness bad debt deduction requires a separate detailed statement attached to your return.

For more information on nonbusiness bad debts, refer to Publication 550, "Investment Income and Expenses" (.PDF) For more information on business bad debts, refer to the Bad Debts section in Publication 334.

My father is in a nursing home and I pay for the entire cost. Can I deduct this on my tax return? | Top

You may deduct qualified medical expenses you pay for yourself, your spouse and your dependents, including a person you claim as a dependent, under a Multiple Support Agreement. You can also deduct medical expenses you paid for someone who would have qualified as your dependent except that the person did not meet the gross income or joint return test.

Nursing home expenses are allowable as medical expenses in certain instances. If you, your spouse or your dependent is in a nursing home or home for the aged, and the primary reason for being there is for medical care, the entire cost, including meals and lodging, is a medical expense. If the individual is in the home mainly for personal reasons, then only the cost of the actual medical care is a medical expense, and the cost of the meals and lodging is not deductible.

You deduct medical expenses on Form 1040, "Schedule A — Itemized Deductions" (PDF). For more information, refer to Publication 502, "Medical and Dental Expenses" (PDF).

Can Social Security tax and Medicare tax be deducted on Schedule A, as medical insurance or anywhere else? | Top

If you itemize your deductions on Form 1040, "Schedule A — Itemized Deductions" (PDF), you may be able to deduct the monthly premiums paid from your Social Security check as medical expense.

If you have voluntarily enrolled in Medicare A because you were not otherwise covered, you can deduct your Medicare A premiums. If you get the Medicare B supplemental medical insurance, the premiums you pay can be deducted as a medical expense.

How do I know if I qualify for the home office deduction? | Top

To qualify for the home office deduction, you must use your home office exclusively and regularly either as a place to meet with clients in the normal course of your business or it must be your principal place of business. Your home office will meet the principal place of business requirement if you use it regularly and exclusively for administrative or management activities.

Keep in mind that if your home office is a den in your home where your children also watch television and play with their toys, you can't claim the home office deduction, because this violates the "exclusive use" aspect of the rule. Refer to Topic 509 for more details.