Nothing satiates my heart than when some- one paying American tax for the tax year 2019, enquires about technical questions about its preparation. Yes, believe me some one telephoned and held detailed discussions on item No. 9 on Form 1040, intended for an individual tax.
Line No. 9 popularly called as “Itemized deductions” has been on record since time immemorial, as one could guess it.
Line No 9 on form No. 2040 simply reads as under:
“Standard deductions or itemized deductions”. Crackling 5 words conveying world of information to U S Income tax payers.
Let us analyze:
1. What are itemized deductions and what has it got different from standard deduction?
2. Standard deduction means every one can get some deduction from income as a benefit. If it is not so, can we get more statistical information.
3. Why not give details of itemized deductions and more explanation on them, even with examples.
Yes, I never waver from my commitment to Internal Revenue Service, treasury office of all-powerful Federal government, the central government of U S Government functioning from Washington, DC.
IRS web site address is given below to study itemized deduction in details.
“https://www.irs.gov/pub/irs-prior/i1040sca–2019.pdf
Form for itemized deductions known as schedule A, can be seen at following email address, again from irs website.
“https://www.irs.gov/pub/irs-pdf/f1040sa.pd
A copy of form known popularly as Schedule A reads as under:
1. Medical and dental expenses.
2. Taxes you paid: State and local taxes,(a) state and local income taxes or general sales tax, state and local real estate taxes, state and local personal property taxes.
3. Interest you paid: Home mortgage interest and points, Home mortgage interest and points reported to you on form No. 1098, mortgage insurance premiums, investment interest.
4. Gifts to charity: Gifts by cash or check, if gifts were made of $250 or more (to attach form 8283), carry over from earlier year
5. Casualty and theft losses particularly from federally disaster declared and to enclose form 4684
6. Other itemized deductions.
7. Total itemized deductions.
A popular usage, now in details, for above schedule A items.
Medical and Dental expenses
To the extent one was not reimbursed, the following expenses incurred can be deducted subjected to following condition:
“You can deduct only the part of your medical and dental expenses that exceeds 7.5% of the amount of your adjusted gross income on Form 1040 or 1040-SR, line 8b.” says IRS publication.
- Details of medical and dental expenses that may be considered are as under;
- Prescription medicines or insulin.
- Acupuncturists, chiropractors, dentists, eye doctors, medical doctors, occupational therapists, osteopathic doctors, physical therapists, podiatrists, psychiatrists, psychoanalysts (medical care only), and psychologists. Yes, the list is exhaustive
- Medical examinations, X-ray and laboratory services, insulin treatment, and whirlpool baths your doctor ordered. Yes, corona virus is included
- Diagnostic tests, such as a full-body scan, pregnancy test, or blood sugar test kit. Needless to mention, even free testing for corona virus was included by almost all state governments.
- Nursing help (including your share of the employment taxes paid). If you paid someone to do both nursing and housework, you can deduct only the cost of the nursing help.
- Hospital care (including meals and lodging), clinic costs, and lab fees.
- Qualified long-term care services (see Pub. 502).
- The supplemental part of Medicare insurance (Medicare B).
- The premiums you pay for Medicare Part D insurance.
- A program to stop smoking and for prescription medicines to alleviate nicotine withdrawal.
- A weight-loss program as treatment for a specific disease (including obesity) diagnosed by a doctor.
- Medical treatment at a center for drug or alcohol addiction.
- Medical aids such as eyeglasses, contact lenses, hearing aids, braces, crutches, wheelchairs, and guide dogs, including the cost of maintaining them.
I have limited the list which is very exhaustive. We all know unlike India, USA does not care for any one who does not have medical insurance and pay insurance premia UpToDate.
It is a routine in USA to pay insurance premium for long term care which is a usual occurrence in old age. Let us look at what stage these insurance premia are restricted for deduction purposes. The following table throws the light.
Limit on long-term care premiums you can deduct.
| IF the person was, at the end of 2019, age . . . | THEN the most you can deduct is . . . |
| 40 or under | $ 420 |
| 41–50 | $ 790 |
| 51–60 | $ 1,580 |
| 61–70 | $ 4,220 |
| 71 or older | $ 5,270 |
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I would like to give an example to explain whether medical expenses can be deducted.
One provided over half of his/her mother’s support but can’t claim her as a dependent because she received wages of $4,200 in 2019. Yes, she/he can include on line 1 any medical and dental expenses paid in 2019 for her/his mother.
Taxes paid
Under line 5, the taxes paid are dealt with. The deduction for state and local taxes is limited to $10,000 ($5,000 if married filing separately). State and local taxes are the taxes that one includes on lines 5a, 5b, and 5c. But what taxes paid can’t be included as deductions?
Federal income tax, excise tax, customs duties, federal estate or gift taxes, state or local gasoline taxes, car inspection taxes, or tax paid for some one else. Any license fee paid for dog license, marriage or driver’s license do fail to qualify.
Home mortgage interest paid
A home mortgage is any loan that is secured by one’s main home or second home. It includes first and second mortgages, home equity loans, and refinanced mortgages. Refinanced mortgages are the ones when some other bank or other institution takes over another’s mortgage mostly at a cheaper rate.
A home can be a house, condominium, cooperative, mobile home, boat, or similar property. It must provide basic living accommodations including sleeping space, toilet, and cooking facilities at the minimum at least.
Certain limit on the loans taken on or after December 15, 2017 makes an interesting study.
Limit on loans taken out on or before December 15, 2017.
For qualifying debt taken out on or before December 15, 2017, any one can only deduct home mortgage interest on up to $1,000,000 ($500,000 if one is married filing separately) of that debt.
But what happens if the loans were taken after December 15, 2017.
Home mortgage interest goes down to $750, 000 for joint returns of married people and half of it if filing return separately.
One enters on line 8a mortgage interest and points reported on Form 1098.
One is eligible to deduct for mortgage insurance premiums paid and investment interest paid under lines 8d and 9.
Gifts to charity
Sad but true. Contributions to charity have been one of the most misused provisions of income tax.
I recollect an instance in Minneapolis, Minnesota, USA, when a leading lady doctor had put up a request to any one to come forward to vouchsafe her putting coins in donation box. Yes, the catch was amounting to $10000. Plain stupid, tax payer who has ignored the following specific guidelines of IRS.
Contributions are deductible only if made to a qualified organization. There are several ways to verify whether an organization is tax exempt and eligible to receive tax-deductible contributions. One may ask the organization to produce a certificate to confirm its charitable status.
Those who contribute towards qualified organizations may use the services of expert CPAs to prepare tax returns since chances of huge gift contributions invariably invite deeper investigations by IRS.
Though I am not going into complications of non -cash charitable contributions like property, clothes or other gifts like stocks, bonds etc, they are very complex and need expert hands.
Other itemized deductions under line 16 invite some of the following items.
- Gambling losses (gambling losses include, but aren’t limited to, the cost of non-winning bingo, lottery, and raffle tickets), but only to the extent of gambling winnings.
- Casualty and theft losses of income-producing property from Form 4684, lines 32 and 38b, or Form 4797, line 18a.
- Federal estate tax on income in respect of a decedent.
- A deduction for amortizable bond premium (for example, a deduction allowed for a bond premium carryforward or a deduction for amortizable bond premium on bonds acquired before October 23, 1986).
- An ordinary loss attributable to a contingent payment debt instrument or an inflation-indexed debt instrument (for example, a Treasury Inflation-Protected Security).
- Deduction for repayment of amounts under a claim of right if over $3,000. See Pub. 525 for details.
- Certain unrecovered investment in a pension.
- Impairment-related work expenses of a disabled person.
Let us be reassured that only a competent CPA with the best software and enormous experience would undertake complex tax preparations. It is of vital news that many registered voluntary organizations which failed to file tax returns had their registrations cancelled from IRS. Yes, it declined the tax deductions made by tax payers who did not obtain proper paper work.
Conclusion
The main purpose of writing this article on a complex item like “itemized deductions-Schedule A” is to explain simple concepts for the relatives of US citizen who sponsor their relatives for green card and also to remove their ignorance that once one gets a permanent residency or green card as popularly known, he/she is not expected to file US Tax returns invariably showing global income which includes Indian income. Yes, it may be required to show and pay Indian income which may attract tax in USA. With the economic status of citizens of USA ranking among the best in USA, it is but natural IRS invariably looks at more income.
Please do engage qualified and senior CPAs who would file tax returns properly, help one in case of death of the clients or floating new companies in USA which is still no.1 for start ups or expansion of business for Indian companies. No other country has helped India more than USA to educate itself, do trade enormously and also attract tax for the income generated. Yes, it also attracted the best talents from India, absorbed them in their system and many of the top American organizations are managed by Indians as CEOs.
Reference
IRS web site
https://www.irs.gov/instructions/i1040sca
1040 form
https://www.irs.gov/pub/irs-pdf/f1040.pdf
Schedule A
https://www.irs.gov/pub/irs-pdf/f1040sa.pdf
Schedule A instructions
https://www.irs.gov/pub/irs-pdf/i1040sca.pdf
Many of my earlier articles have dealt extensively on various aspects of US Taxation, particularly for individual tax, Form 1040.
It is unavoidable while writing a technical article like the above one, I might have extensively based my observations from IRS web site. Full credit to their explicit explanations/examples and updating its instructions. Details of standard deduction are available in any of the above IRS website,
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