The White Falcon - 21.02.1986, Side 8

More tax info
To Itemize or
Not—That Is the
Question
While the Internal Revenue Service
encourages as many taxpayers as possi-
ble to use the simpler 1040A and
1040EZ forms, there will be millions of
taxpayers who will find it to their ad-
vantage to itemize deductions on the
1040 form.
Generally, you will benefit from
itemizing deductions if you paid inter-
est and taxes on a home you own, had
unusually large uninsured medical and
dental expenses during the year, made
large contributions to qualified charita-
ble organizations, or had major unin-
sured casualty losses. What this means
is that you will probably have itemized
deductions totalling more than the zero
bracket amount for your filing status.
Taxpayers who itemize deductions
reduce their adjusted gross income by
their excess itemized deductions. Ex-
cess itemized deductions is the amount
by which total itemized deductions
exceeds the zero bracket amount. For
example, a married couple filing
jointly, with itemized deductions of
$5,640, would subtract their zero
bracket amount of $3,540 from the
$5,640 in order to determine their ex-
cess itemized deductions of $2,100.
The adjusted gross income is re-
duced by the excess itemized deduction
over the zero bracket amount. This
amount is already incorporated into
the tax tables and the tax rate sched-
ules.
Itemized deductions are non-busi-
ness deductions. If you itemize your
deductions, you must file form 1040
and fill in Schedule A (Form 1040).
Schedule A provides space for listing
deductible medical and dental ex-
penses, charitable contributions, taxes,
interest paid, casualty or theft losses,
and miscellaneous items such as union
dues.
If you itemize, you should keep a
record of your deductible items, in-
cluding cancelled checks and receipts.
This will verify your expenses should
the IRS examine your return. It will
also help you determine whether your
itemized deductions are greater than
your zero bracket amount.
Taxpayers who itemize can take ad-
vantage of many deductible expenses.
Here is a brief explanation of some
types of deductions available.
Charitable Contributions
Generally, you may deduct contribu-
tions given to any qualified organiza-
tion established and operated exclu-
sively for charitable, religious,
educational, scientific, or literary pur-
poses, or for the prevention of cruelty
to children or animals; to certain or-
ganizations that foster national or in-
ternational amateur sports competi-
tion; to fraternal organizations if the
contributions are used for charitable
purposes; to veterans’ organizations;
or, to governmental agencies that will
use the gifts exclusively for public pur-
poses.
This means you may deduct contri-
butions to most religious organizations,
community funds, Boy and Girl
Scouts, the YMCA, the Red Cross, the
American Cancer Society, CARE, Vet-
erans of Foreign Wars, etc. You may
not deduct contributions to civic
leagues or chambers of commerce.
If you donate property other than
money, you must base your deduction
on the fair market value of the prop-
erty, that is, the amount you could
reasonably charge if you were selling
the property.
Bear in mind a contribution is only a
contribution at the time of its delivery.
Pledges are not contributions until you
make payment. Also, if a contribution
results in a personal benefit, all or part
of it may not be deductible. For exam-
ple, if you buy a $50 ticket for a church
benefit and receive a meal at the func-
tion worth $15, you can only claim $35
as a charitable contribution.
Medical Expenses
You may deduct the medical ex-
penses you paid during 1985 to the
extent that they exceed five percent of
your adjusted gross income. If you
were reimbursed by insurance or other-
wise, that amount must be subtracted
from your medical expenses.
Payments for the diagnosis, cure,
prevention, or treatment of a physical
or mental illness are deductible as are
payments for the purpose of affecting
any structure or function of the body.
Deductible medical expenses include
your payments to doctors, dentists,
psychiatrists, etc.; payments to hospi-
tals for service, laboratory fees, x-rays,
etc.; and, payments for eyeglasses,
hearing aids and parts, dentures,
crutches, etc.
Things not allowed are trips taken to
“get away from it all,” even if advised
by a doctor, health club dues, mater-
nity clothes, and diaper services.
Expenses for transportation escential
to medical care—such as getting to and
from a doctor’s office—may be in-
cluded in medical expenses. This in-
cludes taxi, bus, train, or plane fares.
If you use your car, you may deduct
the actual out-of-pocket expenses, such
as gas and oil, or nine cents for each
mile you use your car for this purpose.
In addition, you may deduct parking
fees and tolls. Be sure to keep track of
your expenses and mileage.
As of 1984, the one percent limit for
drugs no longer applies, and deductible
drugs will include only insulin and
drugs that are obtainable with a pre-
scription.
Interest
Interest paid during the year on a
debt for which you are legally respon-
sible is deductible.
This includes such debts as a car
loan, a bank loan, an educational loan,
or a mortgage of your home. However,
if in 1985, you prepaid interest alloca-
ble to any period after 1985, you can
only deduct the amount of interest
allocable to 1985 on your 1985 return.
If you buy such things as clothing, a
radio or TV set, furniture, or house-
hold appliances on an installment plan,
budget charge account or credit card
that lists a finance charge, you may
treat the finance charge payment as
interest.
In general, interest deductions must
meet the following tests: the interest
must result from an actual debtor-
creditor relationship; the interest must
be based on a valid obligation to pay a
sum of money; and, the debt must be
one for which you are legally liable.
Taxes
The following state or local taxes
you paid during the year are deduct-
ible: state or local income tax (includ-
ing tax withheld or paid as estimated
tax during the year), real property tax,
personal property tax, general sales tax
and contributions to certain state dis-
ability benefit funds. The 1985 Op-
tional State Sales Tax Tables are a
convenient reference for determining
the amount you may be able to deduct
for sales taxes.
Remember, the sales tax on certain
major purchases—a car, motorcycle,
motor home, truck, boat, plane, home
(including mobile or prefabricated),
materials purchased to build a new
home—can be deducted in addition to
the sales tax table amount. Personal
property taxes assessed by some states,
especially on cars, may be deductible if
they are based only on the value of the
personal property and are imposed
annually.
Generally, no federal taxes are de-
ductible on your federal income tax
return.
Miscellaneous Deductions
These deductions include such items
as union dues; the cost of safety equip-
ment, tools, and supplies used in your
job including professional and trade
journals; and, expenses incurred in
seeking new employment in the same
trade or business. Job hunting expenses
are not deductible if you’re seeking
employment in a new field of work.
You can also deduct the rent on your
safety deposit box if you keep income-
producing items in it, such as stocks
and bonds. Taxpayers who hire some-
one to prepare their tax returns can
deduct the fee paid to the preparer.
If you legally adopt a child with
special needs, you may be able to de-
duct up to $1,500 of qualified adoption
expenses as a miscellaneous deduction.
A child with special needs is one who
the state determines is described in the
Social Security Act adoption assistance
program. This is a child who the state
determines cannot or should not be
returned to his or her parental home,
who has a specific factor or condition
that makes the child difficult to place,
and who has been the subject of an
unsuccessful placement effort.
Qualified adoption expenses include
reasonable and necessary adoption
fees, court costs, attorney fees, and
other expenses that are directly related
to the adoption of the child. Adoption
expenses do not include any expenses
for which you may receive a credit or
that you may otherwise deduct. In
addition, you may not deduct any ex-
penses for which you received pay-
ments from a federal, state, or local
program to pay for your adoption ex-
penses.^
Double-Check
Return to Avoid
Processing Delays
To those expecting a tax refund this
year, the Internal Revenue Service says
a quick check for accuracy can help
avoid mistakes which might slow tax
return processing. Carefully prepared,
easy-to-read returns can be processed
faster, the IRS advises. Once the return
is completed, the IRS suggests that
taxpayers consult the following check
list:
— Have you attached all your
Forms W-2, “Wage and Tax
Statements”?
— Have you attached all the sup-
porting schedules to your Form
1(140?
— Is your arithmetic correct?
— Are all of your entries on the
proper lines?
— If you rounded your numbers, did
you round consistently?
— Is your handwriting legible?
— When you used the Tax Table,
did you follow the line across to
the correct column for your filing
status?
— Did you sign and date your re-
turn? Remember, if it’s a joint
return, your spouse must sign too.
— Did you use the peel-off label,
and is the information on the
label correct?
— Have you retained a copy of your
return for your records?
— Did you remember to put a stamp
on the pre-addressed envelope? If
the return has several attach-
ments, additional postage may be
required. V
8
The White Falcon February 21, 1986