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Itemized vs. Standard Deductions for Individual Income Taxes (Not Business)

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.

Deductions Checklist


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


and anyway if you like this video please

hit like subscribe to the channel add

some comments below in terms of what

else you would like to see and if you

need a tax professional there’s my email

and my contact information in the

description call my office and the

schedule to work together thank you

Hector Garcia

Hector Garcia

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