Business & Tax Insights
By Mark Buescher, C.P.A.
Tax laws as we all are aware, can be quite difficult to understand. Every year we have countless individuals who submit a list of personal expenses hoping that at least some of them are deductible on their individual income tax return. Unfortunately, some are deductible, but some are not.
My mother every year submits to me a list of medical bills she has paid during the year, expecting them to be deducted on her return. However, every year I explain to her that she does not have sufficient deductions to be able to “itemize”.
My oldest daughter, who recently graduated from college and obtained her first real job (halleluiah), sent me her W-2 and a list of charitable contributions to be used in preparation of her return. Again, I had to explain to her that, unfortunately, due to certain thresholds that she did not meet, her contributions would not be deductible. Her first response was “Why not? They told me at the charity I could deduct my contributions.”
Well, the answer is somewhat simple. When preparing your return, you have a choice to make. You either have enough deductions (such as mortgage interest, charitable contributions, and medical expenses) to itemize, or you take the standard deduction, an amount set by the IRS that doesn’t require you to list specific items. Obviously, you compute both figures and take the higher of the two amounts.
The standard deduction varies depending upon your filing status. For married couples, filing a joint return, the standard deduction for 2010 is $11,400. For single filers, the standard deduction for 2010 is $5,700. The amount increases slightly for 2011.
Although this concept is simple enough and most taxpayers are familiar with the calculations, there are other deductions less familiar that you can take in addition to your itemized deductions or your standard deduction. These are considered “above the line” deductions since they are deducted above the adjusted gross income line on your return.
Here’s a quick rundown of these deductions you shouldn’t miss on your 2010 tax return.
• A deduction of up to $250 for classroom supplies purchased by teachers for use in their classrooms.
• A deduction of up to $2,500 for interest paid on student loans.
• A deduction of up to $2,000 or $4,000 for college tuition and fees, depending on your income level.
• A deduction of up to $5,000 for IRA contributions if you’re under age 50. If you’re 50 or older, the deduction limit is $6,000.
• A deduction for the expenses connected with a job-related move.
• A deduction for 50% of the self-employment tax and 100% of health insurance premiums paid if you are self-employed.
• A deduction for alimony paid (child support is not deductible).
• A deduction to health savings amounts (HSAs).
Most of these deductions have qualification requirements or income limitations but are well worth the effort in calculating. Take the time and do your homework. Maximizing your deductions, whether you itemize or not, can be very financially rewarding.
Mark Buescher, CPA is owner and principal of Buescher and Ruff, LLC, a local full service accounting firm in Madison, specializing in tax preparation, business consulting and tax planning. Tax laws contain varying effective dates and numerous limitations and exemptions that cannot be summarized easily. For details and guidance for your specific situation, contact your tax advisor.