What are Itemized Deductions?
You can either take the standard deduction or itemize. The standard deduction for 2013 was $6,100 for “single”, $12,200 for “married”, and $8,950 for head of household. If your itemized deductions do not exceed these amounts, you would choose to take the standard deduction.
Examples of itemized deductions would be home mortgage interest, state income taxes paid, real estate tax, personal property tax, charitable contributions, medical expenses, health insurance, and unreimbursed employee expenses.
Please note the calculations for some of these expenses. For medical expenses/health insurance, you must take your “adjusted gross income” for that year and multiply it by 7.5%. You then subtract that amount out of the total medical/health insurance. Any amount that exceeds that 7.5% calculation gets added to itemized deductions. If the medical/health does not exceed the calculated number, none of it would be a deduction.
Unreimbursed employee expenses are similar. However, you would multiply the adjusted gross income by 2%. The amount of unreimbursed employee expenses that exceed that calculation would be added to itemized deductions. Similar to medical/health, if this amount does not exceed the 2% calculation, none of it would be deductible.
Many times, the medical/health insurance and unreimbursed expenses (because of that calculation) are not enough to exceed the standard. Usually what pushes the taxpayer over the edge to itemize would be the mortgage interest/real estate tax.
Whether you use the standard or itemized deductions, this amount is subtracted out of your income before the tax is calculated. You should always choose the one that results in a lower tax. Please ask us if you have questions.