Updated 01/02/2020
Video Table of Contents with time stamps:
Itemized Deductions (Form 1040 – Schedule A):
- 02:36 Medical Expenses above 7.5% of your income
- 03:44 State and Local / Property Taxes you paid (up to $10,000)
- 04:52 Interest Expense (Mortgage Interest from max $750k indebtedness) and Investment Interest
- 05:55 Charitable Donations up to 50% of your income
- 06:49 Theft or Casualty Losses for Federal Disaster Areas
Other Deductions & Credits (Form 1040 – Schedules 1 to 5):
- 08:01 Real Estate Rental or Business Activity Losses
- 08:17 Capital Losses (Limited to $1,500 Single or 3,000 Married)
- 08:32 Self-Employed Health Insurance
- 08:42 Student Loan Interest Deduction
- 08:52 IRA and SEP Deduction
- 09:02 Qualified Business Income Deduction (20% off business income)
- 10:21 Child Care and Dependent Care Expense Deduction
- 11:01 Foreign Tax Credit
- 11:17 Net Premium Tax Credit (AKA: “Obamacare” subsidy for health insurance)
- 11:46 Earned Income Credit
Other Potential Deductions not mentioned in the video
- Foreign Income Exclusions: due to tax treaty or bona fide residence in a foreign country
- Carry-over Net Operating Losses: if you had NOLs in previous years and ELECTED not to carry it back, you may be able to carry it forward to reduce this year’s taxable income
- Health-Savings Accounts: if you contribute to an HSA account and use those funds for medical expenses, they may be deductible
- Educator Expenses: public school teachers can deduct up to $250 per year for unreimbursed expenses made relevant to education activities.
- Tuition and Education Credits: from colleges and universities, in some cases vocational schools as well, may be deductible
- Foreign Tax Credit: you may get a credit on foreign taxes paid on foreign earned income
- Child Tax Credit and Dependent Credit: You may be able to get a credit for each child you have as a dependent. A smaller credit for non-child dependent
- Alimony Paid: is deductible in 2018 (but no longer in 2019). Child support is not.
And for BUSINESS Deductions, check out this article/video:
What expenses are tax deductible from business income? (2019/2020)
Video Transcript:
hi folks I’m Hector Garcia I’m a CPA and
a professional tax preparer I want to
talk to you about the differences
between itemizing deductions and taking
the standard deduction for some context
here in the year 2018 after the tax law
changed the standard deduction went up
to $12,000 for single taxpayers and
$24,000 for married filing jointly that
is a increase of almost double
as you can see 2017 single standard
deduction was six thousand just over six
thousand dollars for for singles and for
married was just over twelve thousand
dollars now for head of household that
means that you’re a single and have at
least one dependent those numbers now
went to $18,000 anyway so what we’re
trying to achieve with this video it’s
trying to determine whether or not it is
worth it for us to itemize the
deductions which will be done using
Schedule A from your personal tax return
or should we take a standard deduction
in other words we’re trying to achieve
is to understand on whether or not
adding up all the numbers from the
itemized deduction becomes a bigger
number that standard deduction the
standard deduction is meant to have two
goals one is to simplify the tax
preparation in which you have to explain
anything just take the standard
deduction and that’s it or to help those
folks that don’t have the itemized
deductions now the typical things that
we think about when itemizing deductions
is do we have a significant amount of
medical and dental expenses that would
be the first question you want to ask
yourself second did you pay any local
taxes so a state or local income tax or
maybe property tax for your property
those things will be deductible in the
itemized deductions form did you pay any
interest for your mortgage of your
personal residence or did you pay any
investment interest of loans you took
out against your investments
through your broker did you have any
gifts to charity whether they’re cash or
goods that you gifted to charitable
institutions and that you have any
casualty losses you know federally
declared disaster area so those five
main components are what comprises the
itemized deductions now Leslie let’s dig
in a little bit deeper medical and
dental expenses so any payments to
doctors or medicine not your insurance
premiums just the doctors and the
medical expenses are deductible however
there is a 7.5 percent floor or minimum
which means that you take your total
income or your AGI adjusted gross income
and you multiply it times 7.5% for
example let’s take $100,000 let’s say
that your salary between your whole
household is $100,000 7.5% would be
$7,500 only the expenses above $7,500
would count I don’t have that many
customers in which this actually applies
you would have to have a significant
amount of out-of-pocket paid medical
expenses for this to count but if you
had to pay for surgery out-of-pocket or
something like that you probably will
fall into this category so you may want
to check against that 7.5 percent to see
if it’s even worth breaking that down
now let’s talk about taxes you paid so
if you paid any municipal local state
income tax for example I live in Florida
and we don’t have any state or local
income tax but if you are in California
or New York or Illinois or any of the
states that have income or local tax you
may have multiple layers of taxation you
may have your federal IRS tax plus some
local taxes those are deductible as well
as their property taxes for your main
residence so your local main residence
only if you have rental property that
property tax would go in a different
form altogether now you add up all those
numbers together and you’re going to put
them in this
there is a cap of $10,000 for single and
married filing jointly individuals on
those itemized deductions for local
taxes so regardless of what you paid the
most you can take as a deduction for
this form would be ten thousand dollars
now one really important caveat if
you’re filing married filing separate
the cap is five thousand so now let’s
talk about mortgage interest so the tax
law changed and there’s a cap on the
amount of mortgage indebtedness or your
loan amount that would qualify for this
that number is seven hundred and fifty
thousand so most Americans should be
okay because most people don’t owe more
than seven hundred and fifty thousand
dollars in the personal mortgage so only
up to the first seven hundred and fifty
thousand dollars worth of of the
mortgage you can deduct interest for so
if you have a much bigger mortgage
you’re gonna have to do a special form
and that deduction is gonna face out as
the number gets bigger and bigger in
other words any interest to pay for your
mortgage will be what you put in this
page now if you have an investment
account that you have stocks or bonds or
something like that and you don’t sell
them but you take a loan against them
any interest that you pay for that loan
that would go in this form on whether it
on where it says investment interest now
let’s move on to charity for the most
part when you’re making cash payments to
charity that’s pretty simple any cash
payments you make you put them in this
form if it’s more than two hundred and
fifty thousand if it’s more than two
hundred and fifty dollars you have to
itemize and enlist all those charities
that you paid for that you pay to and
the dollar amounts if you’re paying with
goods in other words if you’re going
down to Salvation Army or goodwill and
dropping off clothes or shoes or
whatever you’re gonna have to do a
formal valuation of those goods to
figure out how much of that you can get
a credit for now also there’s a 50% of
your income limit for the charity so you
cannot take a deduction for any charity
given that it’s above
50% of your income if you give more than
50% that will not be a deduction you can
take this year and finally casualty and
theft losses that means that if you are
in a zone that’s been declared a federal
disaster area because of a fire
a hurricane tornado whatever only if
it’s been declared a federal disaster
area any losses you take that the
insurance company did not reimburse you
for would be deductible on this page so
at the end of the day you add up all
those numbers the medical expenses with
the 7.5% floor so only the amount above
that all your local taxes including your
property taxes up to ten thousand
dollars the interest you paid in your
mortgage as long as it doesn’t go above
the seven hundred and fifty thousand
dollar mortgage in that this amount all
the gifts to charity limit it to that
50% and the casualty losses you are up
all those numbers and if that number in
the bottom it’s actually higher than the
standard deduction then it’s worth it
for you to take itemized deductions
now that answers that question however
beyond itemized deductions or standard
deduction there’s other types of
deductions that you can take that are
worth looking into one of them is what
they called adjustments to income so you
can reduce from your gross income any
losses that you take on real estate
rental activity on a business obviously
a business loss would be something you
would deduct from your income a capital
loss so if you took any losses on the
stock market for something that you
bought and sold at a loss you can take a
loss there’s a limit of $1,500 per year
for single and three thousand dollars
for married but you could take a loss
with that certainly can do that if
you’re self-employed and you paid for
your own health insurance out-of-pocket
and you have to look into the rules of
exactly how that works you can take a
deduction on that if you paid student
loans up to twenty five hundred dollars
worth of interest per year you can take
a deduction or an adjustment of income
against that if you made contributions
to a self
directed a retirement account like an
IRA or a SEP that could also be reduced
from your taxable income there’s another
deduction called qualified business
income deduction now this was a really
complex one because there all sorts of
rules around it but if you have your own
business and you have income to that
business and you make three hundred and
fifteen thousand dollars as I’m married
filing jointly or one hundred and fifty
seven thousand dollars as a single you
can actually reduce twenty percent of
that income as part of your overall
taxable income so for example let’s say
that I have a hundred thousand dollars
of income altogether fifty thousand is
my salary from another job and fifty
thousand comes from income from a
business I can actually reduce that
fifty thousand down by ten thousand
twenty percent of that to my taxable
income right so that’s actually their
new for 2018 if you make more than three
hundred and fifteen thousand dollars as
married filing jointly or 157,000
there’s also two rules and limits based
on the type of business that you have if
you have an S Corp you may have to have
special certain dollar amount in payroll
there’s all sorts of limitations around
there but for most taxpayers they’re
going to get that straight 20% deduction
from their business income and finally
we’ll quickly talk about credits you can
take a credit for every dependent that
you have that is a child as a special
credit for that
also if you pay for the their daycare
expenses or after school expenses
activities that allows you to work while
they’re in that special school or that
daycare you can take a credit for that
it’s limited to six hundred dollars per
kid and if you have a older dependent or
a dependent of any age really that has
that you are taking care of and you have
to pay to take care of that person
because they’re sick or incapacitated
whatever you can take the same similar
type of credit with those folks as well
the other credits worth talking about is
a foreign tax credit that means that you
have income from foreign sources which
you are going to pay tax
you and us four but you get a credit or
now sometimes the whole thing or a piece
or the taxes you paid overseas there’s
also the net premium tax credit these
are for folks that have insurance
through the Affordable Care Act and at
the end of the year it will calculate
whether or not you got too much subsidy
or too little subsidy from the
government with the Affordable Care
Credit Act known as Obamacare and if you
pay too much they’re gonna give you some
money back if you pay too little they’re
gonna charge you that difference in the
tax return right so it’s actually a
credit and a tax potentially and lastly
the Earned Income Credit this is really
for lower earners that have some income
and have dependents and it’s basically a
tax credit that a lot of folks have in
order just to help them with their
income overall that’s really for folks
that are beyond a certain percentage of
the national poverty rate anyway so this
should be a really really good
comprehensive video about deductions if
you using tax software tax software like
TurboTax that sort of thing will
probably guide you to this process if
you’re using a tax professional that
that person should probably also guide
you to the process but I think it’s
important for you to have that sort of
checklist of all those things that are
potential deductions for you and
proactively bring to your accountant up
front so you have all that stuff handy I
have an Excel spreadsheet that I give to
some of my customers when they ask for
that information
that’s a checklist of all the things
just so you can use it as a checklist or
add some notes to that and you can click
on the description below somewhere to
get to that I’ll have a whole bunch of
videos all about tax and tax deductions
so check the description for that as
well
and anyway if you like this video please
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schedule to work together thank you
