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 "The whole thing is steeped in mysticism," says Mark Steber, chief
tax officer at Jackson Hewitt.
That is a plausible reason why 68 percent of filers forgo this
torturous process and file for the standard deduction, according to
IRS statistics for 2013, the latest year available. For 2015
returns, the standard deduction is $6,300 for individuals and
$12,600 for married couples.
If you think you have more than that in allowable expenses, it is
time to get very familiar with Schedule A. The list of itemized
deductions features several with high variability, including medical
expenses, charitable deductions and unreimbursed employee expenses.
This is where the deduction confusion sets in.
The stakes can be high: The amount you claim in deductions gets
subtracted from your adjusted gross income and lowers your tax
burden. If you exceed certain income caps, starting at $154,950,
some of these deductions are limited.
Here are some of the things you can and cannot do with your
deductions:
* Medical expenses
A small fraction of the slice of taxpayers who itemize deductions
qualify to take medical expenses because the thresholds are so high.
Since 2013, you can only deduct the portion that is greater than 10
percent of your adjusted gross income.
"Most people don't get this," says Steber.
You cannot deduct items or services that your employer or insurance
reimbursed you for - that would be double-dipping. You also get no
credit for over-the-counter items or health club dues.
* Charity
In this age of crowdfunding, charitable donations can be a little
confounding. You may have given to a lot of causes by clicking a few
buttons. But the recipient probably does not qualify as a non-profit
for tax purposes.
"Whoever you donate to has to be a recognized non-profit, have a
charitable purpose and be recognized by the IRS," says Lisa
Greene-Lewis, a CPA and tax expert with TurboTax, a division of
Inuit Inc.
Your favorite political candidate or cause also does not count,
notes Greene-Lewis.
A key identifier: Does the organization have a tax identification
number?
Any tax software you use, or your human tax preparer, should walk
you through the process with a series of prompts to find out which
of your causes qualifies. TurboTax also has an app, ItsDeductible
(http://intuit.me/P2ltau), to help keep track throughout the year.
Another way to check is to use the IRS's Exempt Organization Select
Check (http://1.usa.gov/1jWDHtc).
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This is particularly useful if you are planning to donate clothing
or other household items. You will need a slip from the organization
with an estimate of how much the donation is worth.
Metal donation bins in parking lots will be a hard sell with the IRS
for two reasons: Many are not actually from recognized charitable
organizations, and you will not have any proof of your donation.
"The law doesn't say what the documentation should be - just that
you have to be able prove it," says Steber.
Another distinction to note: If you buy something from a charitable
organization - such as Girl Scout Cookies or an item at an auction -
you cannot deduct the cost of the item as if it were a donation.
* Employment Expenses
When you hear crazy stories about deductions, they usually fall into
this miscellaneous category - such as the professional body builder
who deducted body oil or the exotic dancer who deducted the cost of
her augmented breasts.
The IRS says a deductible employment expense is one that is
"ordinary and necessary"; it gives such examples as dues to
professional societies and job search expenses, as well as home
office expenses.
You can, however, only deduct employment expenses in excess of 2
percent of adjusted gross income.
The big no-no, as with medical expenses, is not claiming anything
you already got back from your employer.
To make sure you capture every last penny back that you are due, you
might want to keep a journal throughout the year, Steber suggests.
"Monitor any life events you have - not just getting married or
having a child. Did you start taking care of a dependent family
member? Did a spouse take classes? Those life events drive a lot
more tax opportunity," he says.
(Editing by Lauren Young and Steve Orlofsky)
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