Other Itemized Deductions

Although most Americans will not avail themselves of these other Itemized Deductions, you may be an exception.  If so (or if you just want a copy of the Schedule A — where we figure our Itemized Deductions — to follow along with the analysis), go to my Web site  (http://www.personal.kent.edu/~maltieri/web/guide/home.htm), click on Tax Planning, then Forms and Instructions and download a copy of Schedule A and Instructions to it.  If you do think you can take advantage of these other Itemized Deductions, read the Instructions very carefully.  Often, the Instructions for the other Itemized Deductions make reference to IRS Publications, which are also accessible through my Web site and will be referenced below.

We put the total Itemized Deductions that we compute for the year on Schedule A to the Form 1040.  We have just focused on optimizing the "Big Three" Itemized Deductions: state and local taxes (lines 5 through 9 on the Schedule A), interest expense you pay, (lines 10 through 14) and charitable gifts (lines 15 through 18).  How about the other categories of Itemized Deductions on the Schedule A?  Here is why the typical itemizer will have little or no entries in the other Schedule A categories.

Medical Expenses

With regard to deductible medical and dental expenses, you will need a large uninsured expense in order to avail yourself of this Itemized Deduction.  Why?  There are two reasons.  The first is that to the extent you have insurance coverage or are reimbursed for your medical or dental expenses by your employer, they may not be deducted on the Schedule A.  The second obstacle is that there is a large 7 1/2% of Adjusted Gross Income (see pages 9-10) hurdle that needs to be surpassed.  Only the excess over the 7 1/2% floor may be taken as an Itemized Deduction.  Since most Americans have good health insurance or employer health coverage and/or do not assemble enough uninsured medical expenses to get over the AGI floor, most itemizers have no entry in this category.

Example: Mark and Debbie have Adjusted Gross Income of $50,000.  Mark has comprehensive family health care coverage through his employer.  Mark and Debbie and their children's uninsured health care expenses for the year (deductibles and co-pays for which they are liable) amount to $1,500 for the year.  Since the couple's uninsured healthcare expense for the year of $1,500 is less than 7 1/2% of their AGI ($3,750), they have no Itemized Deductions for medical expenses this year.

What we are looking for in this medical expense category is a large, uninsured medical expense.  Nursing home expenses, for example, are frequently uninsured or underinsured.  The entire nursing home expense (room and board as well as medical expenses) is a potentially deductible expense if the primary reason for the patient being in the nursing home is to attend to his or her health care needs.

Example:  Let's continue the prior Example.  Audrey is Mark's dependent mother.  Since she is his dependent, Mark may add her uninsured medical expenses that he pays to his and Debbie's in computing the couple's Itemized Deductions for the year.  Audrey is a resident at a local nursing home.  Audrey's doctor had recommended that she be put in this particular skilled nursing home facility to attend to a chronic heart condition.  Mark pays the uninsured nursing home expenses that amount to $15,000 for room and board and an additional $5,000 for medical treatment.  Because Audrey's stay in the nursing home is necessitated principally because of her medical condition, the entire $20,000 is to be accounted for and Mark and Debbie can add an additional $17,750 [$20,000 plus $1,500 (from the prior Example) minus $3,750 (7 1/2% of their AGI)] to their Itemized Deductions for the year.

For more information in this area, go to my Web site, click on IRS Publications and view Publication 502, Medical and Dental Expenses.

Casualty and Theft Losses

How about if you suffer a casualty (fire, hurricane, tornado) or theft damage to your property?  An Itemized Deduction is possible here, but again it is severely limited.  What are the limitations?  Only uninsured losses are potentially deductible and now we have a 10% of AGI hurdle to get over.

Example: Mark and Debbie's house was broken into.  The fair market value of what was stolen was $5,000.  After the applicable deductibles, the insurance agent paid Debbie $4,500 for their loss.  The couple's AGI is $50,000.  Nothing from this occurrence increases Mark and Debbie's Itemized Deductions.  The net loss of $500 is not in excess of 10% of their AGI ($5,000).

If you think you qualify, go to my Web site, click on Tax Planning, then IRS Publications to access IRS Publication 547, Casualty and Theft Losses.

Job Expenses and Miscellaneous Deductions

With regard to the job expenses in this category (job travel, union dues, job education, etc.), it is only unreimbursed employee expenses that are potentially deductible.  If you are paying these expenses with your own money, most employers maintain a reimbursement plan to pay the employee back for these out-of-pocket expenses incurred by the employee on behalf of the employer.  In that case, the reimbursement typically is not included in your income and you can’t deduct the expense (the reimbursement has put you back into the same economic position you were in before paying the expense).  Another big item in this category is tax preparation fees you pay to a tax advisor.  After adding up your unreimbursed employee expenses, union dues and tax preparation fees, you have to get over another Adjusted Gross Income floor before you have any actual Itemized Deduction in this category.  Now the floor is 2% of your AGI number.

Example:  Mike and Lisa have Adjusted Gross Income of $60,000.  Mike incurs $1,000 of unreimbursed automobile expenses directly related to his employment activities.  In addition, Lisa paid $500 for tax preparation and investment advisory fees.  The couple may add $300 to their Itemized Deductions for the year [$1,500 minus $1,200 (2% of their AGI].