IT'S TAX TIME (part 1)

I've been getting a lot of questions about taxes this last couple weeks, so I am posting some of my tax tips 

 

- Standard Deductions vs Itemization on a Schedule A.

 

There are some pros and cons of itemizing your taxes. Your standard deduction for Married filing jointly is $11,900. Head of Household is $8700, and Single is $5,950. It is usually much easier just taking a standard deduction, but you could also be leaving money on the table if you take a standard deduction. Some of your itemized deductions may include "medical bills" over 7.5% of your adjusted gross income (this includes prescriptions, medical supplies or equipment, doctor and hospital bills, dental bills, mileage, parking and tolls- that is not covered by insurance) "State income tax" "Real estate taxes" "mortgage interest" "mortgage insurance premiums" "sales tax" "gambling losses" "non reimbursed work expenses" "charitable contributions" (cash and non cash items) and even "tax preparation fees" You can also include any "casualty or loss" (damage from acts of nature, theft, accident, etc that insurance does not cover up to a certain amount) A deduction lowers your tax liability. Let's say you make $35,000 a year. If you file MFJ and take the standard deduction, it lowers your tax liability to $23,100. After you add your exemptions of $3,800 for each person (family of 4) you can deduct another $15,200 from your taxable income. Now your taxable income is only $7,900. If you itemize, you might be able to lower that amount even further. If your itemized expenses don't add up to $11,900, then you should take the standard deduction.

 

Example: John Q Public is married and has 2 children. He makes $35,000 a year. He owns a home. He paid $5840 in mortgage interest. He also paid $480 in mortgage insurance premiums. He tithes $50 each week to church and made a $100 contribution to the United Way and a $20 contribution to the American Red Cross. He paid $2,400 in property (real estate) tax, and he paid 1,400 in state taxes. He paid $2500 for his daughters braces after insurance, and he paid $2160 in insurance premiums and $1600 in insurance deductibles, co payments and prescriptions. In total he had $3635 in eligible medical deductions. His total itemized deductions would be $16,475. Instead of having a taxable income of $7900 by taking the standard deduction, he has a taxable income of $3,325.