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All about itemized personal tax deductions

Can I deduct union dues? Can I deduct my gifts to charity, or mileage to work, or my dog?  These are questions that are asked frequently during the tax return preparation process.  Our goal with this page is to answer some basic questions about itemizing deductions on your annual Form 1040.

Start with the video below.  It covers all of the information written on this page.  Right below the video is a a downloadable PDF worksheet that will help you compile necessary information for your annual income tax return.

Itemized Deductions

On your tax return, you are allowed a ‘Standard Deduction,’ but you can also ‘Itemize’ your deductions. If the total of your Itemized Deductions is more than the Standard Deduction, then you can take that deduction instead. The main itemized deductions are home mortgage interest, state/local taxes (including property taxes), charitable donations, and medical expenses.

It does not make sense for everyone to Itemize their deductions. People who do not own a home and didn’t make large charitable contributions or incur large medical expenses usually do not benefit from Itemizing their deductions. However, if you paid on a home mortgage, made large charitable contributions, and/or had major medical expenses, then Itemizing deductions might benefit you.

For Itemized Deductions to provide a tax benefit, they must be more than the Standard Deduction:

  1. The Federal Standard Deduction is $12,950 if you file Single, $25,900 if you file Married, and $19,400 if you file Head of Household.
  2. In California, the Standard Deduction is $4,803 if you file Single and $9,606 if you file Married or Head of Household.

Below is some basic information about expenses that qualify as Itemized Deductions.

Medical expenses are deductible only if they are more than 7.5% of your income.  For example, if you have an income of $100k, the first $7,500 (7.5% of $100k) of medical expenses are not deductible, but any medical expenses that you incur in excess of that threshold can be deducted as an itemized deduction.

  • Health Insurance
  • Doctor, Dentist, and Eye Doctor Visits
  • Prescriptions
  • Glasses or Contact Lenses
  • Hearing Aids
  • Medical Equipment
  • Transportation to/from a Medical Facility, and much more.
  • You can learn more about what medical expenses qualify as tax deductions at gov/taxtopics/tc502.
  • State Income Taxes – We will automatically add this when we prepare your tax return.
  • Property Taxes
  • Vehicle Registration Fees – A part of your vehicle registration fee may be tax-deductible. In California, the deductible portion of your registration fee is called the Vehicle License Fee (VLF). This fee is separately stated on your registration renewal form. You can also lookup your VLF at ca.gov/wasapp/FeeCalculatorWeb/vlfForm.do.
  • Home Mortgage Interest – Reported on Form 1098
    • You can deduct interest paid on the mortgage for your main home, as well as on a second home (including an RV).
    • If you can’t find Form 1098 from your mortgage company, you might be able to download a copy of the form from your online account. You might also be able to call your mortgage company to get the information. Many mortgage companies have a phone system that will read the tax-relevant information from Form 1098 to you after you enter your loan number/SSN.
  • ‘Points’ on Refinance – ‘Points’ paid on a refinance might also be tax deductible. If you refinanced your home mortgage, please provide the final closing statement.
  • Cash/Check Donations – For donations of $250 or more to one organization, you are required to get an acknowledgement from the organization. We do not need to see this to prepare your tax return, but if the IRS ever audits your return, they will want to see it.
  • Non-Cash/Item Donations – If your item donations total more than $500, then you are required to provide additional information for each donation that you made:
    • Date of donation
    • Description of items donated
    • Donee organization
    • Fair Market Value of items donated
  • Mileage for Charitable Purpose
  • Gambling Losses (only if offsetting gambling winnings)

The following miscellaneous itemized deductions have a couple limitations:

  1. They are not deductible on your Federal Tax Return. Some states, including California, allow these deductions on your State Tax Return.
  2. They are only deductible if they are more than 2% of your income. For example, if you have an income of $100k, the first $2,000 (2% of $100k) of these miscellaneous expenses are not deductible, but any miscellaneous expenses that you incur in excess of that threshold can be deducted as an itemized deduction.
  • Tax Preparation Fees
  • Safe Deposit Box
  • Job Expenses (Unreimbursed) – If you used your personal vehicle or an office in your home for work, you can use the following worksheet to report this information: [Insert link to Tax Worksheet page 2]
    • The standard mileage deduction can be used to deduct your job-related auto expenses. This does not include commuting miles from home to your main place of work, but other work-related mileage can be deducted.
    • Your home office can be deducted if it was used regularly and exclusively for work.

Other Common Tax Deductions & Credits

If you paid child care expenses so that you could work, then you might qualify for this credit. To claim the credit, we will need the provider’s name, address, phone number, EIN/SSN, and the amount you paid them.

If you or one of your dependents had post-secondary (college) education expenses, you might qualify for an education credit. Tuition expenses are typically reported on Form 1098-T.

Making retirement contributions can be a great way to get a tax deduction while paying your future self!

If your employer offers a retirement plan (for example, a 401(k)), any applicable tax deduction will be subtracted from the taxable income on your W-2, so there is nothing you need to do to get this deduction.

You can also contribute $6,000 to an IRA for 2022 and $6,500 for 2023 (plus an additional $1,000 if you are 50 years old or older at the end of the year).  These contributions are reported on Form 5498.  There are two general types of retirement contributions that you can make:

  • Traditional – These contributions provide a current tax deduction, but if your (or your spouse’s) employer offers a retirement plan, this deduction is subject to income limitations. If this situation applies to you, talk with your tax professional.
  • Roth – These contributions do not provide a current tax benefit, but they grow in your retirement account tax-free, and you will not have to pay tax when you take distributions from your retirement account. There are income limits to making a Roth IRA contribution, but there is also a legitimate back-door method that you can use to make Roth IRA contributions if you are over that income limit.  If you file Single or Head of Household and your income is greater than $125k, or you file Married filing Jointly and make more than $200k, talk to your tax professional.

If you paid on student loans, you might be able to deduct the interest portion of the payments on your tax return. This is reported by your student loan provider on Form 1098-E.

If you were a teacher, you can deduct up to $250 of unreimbursed classroom expenses on your tax return.

There are various tax credits for energy efficient improvements to your home and for purchasing electric vehicles.  If you are interested in one of these credits, talk to your tax professional.

We have created the following resources to help you understand what we will need to complete your tax return:

  • 2021 Tax Record Worksheet (Click Here)
  • What Tax Documents Do I Need? — Visit prospecttax.com/taxdocs.
  • 2021 Schedule C (Self-Employed) Worksheet (Click Here)
  • 2021 Schedule E (Rental/Investment Property) Worksheet (Click Here)
  • Online Tax Questionnaire — You should have received an email notifying you that your Tax Organizer is ready to start. Follow the instructions on that message to create your new account and get started. You can access your Questionnaire at any time inside your online Client Center account.

Our primary appointment method is going to be virtual due to continued COVID-19 restrictions.  However, each tax professional (Joel, John, and Matt) have opted to individually chart their own course in regards to in-office appointments.  John’s circumstances allow for no in-office appointments.  Matt and Joel will make themselves available for in-office appointments on a limited basis to clients with special circumstances and needs.  We ask our clients to work with us again this year and use the resources we have provided.  If you desire an in-office appointment, please contact our office. We can be reached by phone at 909-797-3140 or by email at info@prospecttax.com.

No appointment is necessary. You can drop off documents any time during normal business hours. Or you can upload documents to your online Client Center account any time. If you need to explain your situation or tax documents before we get started, just  let the Prospect team know and we will arrange for a phone call before your project gets started.

The Client Center is our online client portal. You can use the Client Center to:

  • Submit your Tax Questionnaire to us online
  • Securely upload your tax documents
  • View copies of completed tax returns and other documents shared by our office
  • Visit prospecttax.com. Click the Client Resources link and select Client Center Login.
  • The Client Center Login page will have helpful information about using your Client Center account.
  • You will first need to register your Client Center account. You should have received an email prompting you to create your account for the first time. If you didn’t receive the email, please contact our office for help.
  • You can download a convenient mobile app to access your Client Center account on your phone. The app will also allow you to use your phone‘s camera as a scanner to send us documents quickly.

Part of our new process includes a Virtual Appointment (phone or web meeting) with you after the initial preparation of your tax return. Since most of the busy work will be done, we will use all of our time to review your taxes together, ensure nothing has been missed, answer your questions, explain the next steps, and do some planning for the coming year. The goal is for you to leave this meeting feeling great about your tax return and completely in control of the process! Of course, if questions come up before you sign, just let our team know so they can connect you with your Tax Pro.

Yes! If you would like to schedule your Virtual Appointment (phone call or web meeting) in advance, please call our office at 909-797-3140 or use the following links: johnwww.caIendIy.com/johnhopkins   JoeIwww.caIendIy.com/joelhendriks     Mattwww.caIendIy.com/mattkaiser

If you haven‘t scheduled an appointment in advance, we will contact you as soon as your documents are received by our office.

All Individual income tax returns can be signed electronically. The IRS doesn‘t allow electronic signature for Corps, Partnerships, Trusts, or Estates. When your tax return is complete, you will receive an email that walks you through the process. We use a service called SafeSend Returns to assist with these final steps of the tax return process.

Once your tax return is signed and we’ve received your signed documents, we will electronically file your income tax return. There is nothing left for you to do except pay your invoice to us and track your refund (www.irs.gov/refunds) or pay your balance due (www.irs.gov/payments).