Video instructions and help with filling out and completing Fill 1041 Schedule In Form

Instructions and Help about Fill 1041 Schedule In Form

Since most people won't itemize they can tune out this next section but if you're one of the 25% of people who do itemize here's the skinny on what you can or can't deduct on Schedule A the first deductible item is for medical expenses when I first started to do my taxes as a youngster I thought I'd be smart and save my receipts for all my routine medical and dental checkups I figured I'd clean up by deducting these bills boy was I wrong the truth is unless you've got one foot in the grave and don't have insurance you probably won't be able to take advantage of this deduction the reason for this is that the medical deduction only helps if your unreimbursed medical expenses total more than 7.5 percent of your AGI still if you have a low AGI and high medical bills you might want to look into this deduction note that medical insurance payments and payments to an HMO are potentially big payments that qualify for this deduction also long-term care insurance premiums became deductible medical expenses starting in 1997 next comes state and local taxes you also can deduct foreign taxes on Schedule A but you're better off getting a credit which I'll explain later when it comes to state and local taxes there are no real strings attached just total up the state and local income tax as you paid and the property taxes you paid there's no AGI threshold to worry about there are a few caveats however the first is that sales taxes are no longer deductible another is that assessments by a local government for services like garbage removal aren't deductible either finally if you itemize and deduct state income taxes this year and then receive a state income tax refund next year you'll have to report that refund as taxable income next year and be careful here the IRS and state governments exchange tax information and if you don't include the reef and in next year's federal return you'll probably get an IRS letter the next deductible item is interest the main items here are mortgage and investment interest you no longer can deduct personal interest for things like credit cards or automobiles used for personal reasons you can deduct the interest you pay to buy up to two homes mortgages the total up to $1,000,000 and the interest on up to $100,000 in home equity financing are deductible the interest you paid is reported to you on form 1098 which your lender should send to you it should go without saying that if your deduction is different from the amount on the form 1098 you'll be asking for an IRS letter if you've just purchased a house you can deduct the entire amount of the points or prepaid interest that you made however if you paid points when you refinanced a mortgage you can't deduct the points immediately you'll have to amortize or spread out the points over the life of the loan note that the IRS says that a home is defined as a place that has sleeping cooking and bathing facilities so even a houseboat or motorhome may qualify as a first or second house if you have a second home that you don't use personally but instead rent out on a full-time basis you should deduct that homes interest on Schedule E however if you have a second home that you use personally as well as rent out you've got some hoops to jump through read the IRS instructions to see how to handle this in addition to home mortgage interest you can also deduct investment interest I'm always amazed about how people get all excited about piling on mortgage debt this is a great deal they tell you because mortgage interest is deductible but strangely the same people don't have the faintest idea that they can deduct investment interest if your goal in life is to maximize deductible interest you also can look at investment interest investment interest is interest you pay to buy an investment like stocks bonds mutual funds or raw land a more popular way to describe this type of borrowing is a margin loan unlike home mortgage interest which is limited to 1.1 million dollars in principle you can deduct an unlimited amount of investment interest with one big caveat you can only deduct interest equal to your current income from investments you can treat the capital gains from your investments as income which can offset the interest expense but you can't get favorable capital gains treatment for the income and then fully offset the investment interest with that income buying stocks and bonds on margin becomes more attractive because the deductibility of investment interest lowers your effective interest rate still I can't recommend that you take advantage of this see my tape on stock investing for details on this but buying securities on margin is not for the faint of heart if the market moves against you for an extended period of time you could wind up with a large loss or even become bankrupt play it safe and don't buy securities on margin charitable gifts are the next item on schedule a one nice thing about charitable items is that there's no threshold level like there is for medical expenses if you give one thousand dollars to a recognized charity you should be able to get a one thousand dollar deduction your deduction may be limited however if you give away more than twenty percent of your AGI but for most people this isn't an issue there are of course other regulations the first is that you must give to a recognized charitable educational or religious organization money that you give to individuals like your down-on-his-luck brother-in-law isn't deductible check the IRS list if you have a question about the group you're giving money to donations for political reasons are not deductible if you give more