Taxes
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SMALL BUSINESS
Itemizing Your Deductions
If the amount of your allowable deductions is greater than your standard deduction, the IRS encourages you to itemize your deductions.
If you don't qualify for the standard deduction, you have no choice but to itemize. Itemizing your deductions requires you to complete Schedule A of IRS Form 1040.
Your itemized deductions begin to phase out at higher incomes. This rule for losing your itemized deductions is sometimes referred to as the "phase out" rule.
For 2006, you begin to lose some of your itemized deductions when adjusted gross income (AGI) reaches $150,500. (For married taxpayers filing a separate return, the income phase out amount is $75,250.)
Your itemized deductions phase out at the rate of 3% of additional income. In other words, for each $1,000 of adjusted gross income above the phase out limits, you lose $30 of itemized deductions. You can never lose more than 80% of your itemized deductions.
To calculate your itemized deductions, see the instructions to Form 1040.
Some major categories for itemizing deductions include:
Home mortgage interest expense. You may generally deduct the mortgage interest you pay on your residential mortgage for up to $1 million in home-acquisition debt and $100,000 in home equity debt. See IRS Pub. 936 for more information.
Believe it or not, the Internal Revenue Service doesn't require a return from some people.
Who Has to File a Tax Return?
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Real estate taxes. Property taxes that you pay on your home may also be itemized. See IRS Pub. 530 for more information.
Medical and dental expenses. You may deduct qualified medical and dental expenses that exceed 7.5% of your adjusted gross income. See IRS Pub. 502 for more information.
Contributions to charitable organizations. The IRS allows you to deduct contributions of money or property to a qualified organization for its use. See IRS Pub. 526 for more information on the types of qualified organizations and charitable contributions.
Miscellaneous expenses. Miscellaneous expenses are generally unreimbursed expenses that are related to your performance of a job such as travel, lodging and meals. Certain types of miscellaneous expenses can only be deducted for amounts that exceed 2% of your adjusted gross income. See IRS Pub. 529 for more information.
The Economic Growth and Tax Relief Reconciliation Act of 2001 gradually eliminates the phase out rule over five years, beginning in 2006.
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Taxes: Basics
Anyone seeking help with taxes should start with the fundamentals. Here are the basics of taxes.
- Who Must File a Return
- Audits & Penalties
- Taxes on Capital Gains
- Withholding Your Taxes
- Common Tax Credits
- Personal Exemptions
- All About AMT Tax
- Calculate Taxable Income
- Itemizing Deductions
- Filing a Return Online
- 2007 Tax Brackets
- 2008 Tax Brackets
- Standard Deductions
- How to File an Extension
