Should I bother itemizing tax deductions?

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lumberingc
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Should I bother itemizing tax deductions?

Post by lumberingc »

For the past several years, I have itemized tax deductions, but I always end up getting the standard deduction. I keep receipts in a file, and I file via turbo tax.

my info

tax filing status: married, filing jointly
marginal tax rate: 33%
Tax deductions: student loan interest (both me and spouse-no longer qualify as income too high), charitable donations, work related expenses (both me and spouse), ?home office (I don't think I actually quality).

It seems unfair that a small business owner can deduct all work related expenses (and often fraudulently deducts a lot of personal expenses), and I can't even deduct a completely legitimate expense (work related equipment, professional certification, professional conference attendance).

Is there any way to rectify this? Is it worth it to get an accountant?

Obviously, when I buy a house, I will be able to deduct interest payments which will push my deductions over the standard deduction so that every deduction item will count, but what can I do in the interim?

-Lumbering
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rob
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Re: Should I bother itemizing tax deductions?

Post by rob »

I feel your pain on the work related expenses.... You could try bunching allowable deductions... so delay some expenses near the end of year 1 and pre-pay at year end. So year 1 take std, year 2 itemize, years 3 std etc.
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harikaried
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Re: Should I bother itemizing tax deductions?

Post by harikaried »

lumberingc wrote:It seems unfair that a small business owner can deduct all work related expenses, and I can't even deduct a completely legitimate expense.
One could easily look at this as it's unfair that a small business needs to track every expense while an individual gets a standard deduction even without any expenses.
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White Coat Investor
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Re: Should I bother itemizing tax deductions?

Post by White Coat Investor »

Life isn't fair. The sooner you realize that, accept it, learn the rules, and start making it unfair to your benefit, the better off you'll be.
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Toons
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Re: Should I bother itemizing tax deductions?

Post by Toons »

Plug your numbers into turbo tax and see what deductions it shows you is most beneficail
Standard or Itmemized.
The program will choose what is best for you.
Fair?
It is what it is.
Is if fair that I have to pay thousands in Federal Income Tax this year?
Sure it is,the IRS says I made a lot of investment income and they want their portion :happy :happy
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Re: Should I bother itemizing tax deductions?

Post by Longdog »

No state income tax to deduct?
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Re: Should I bother itemizing tax deductions?

Post by gd »

What's not fair is arranging your life and finances to have lots of itemized tax deductions, finally achieving that wonderful moment when it pays to itemize, and discovering you saved... a few dollars. Except it's self-induced. :D I enjoy having little to deduct (really? You like paying hundreds of thousands of interest on mortgages?) and still getting a huge standard deduction.
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Re: Should I bother itemizing tax deductions?

Post by livesoft »

We do not itemize every year because we do not have enough deductions. But we do something called "bunching deductions" so that we can itemize every other year. Search the forum for more information. Such a technique may save you $1000 to $2500 a year on taxes depending on your marginal income tax bracket.

And I think it is pretty easy for folks to make the decision. There are the big 4 deductions on Schedule A: Property taxes, Mortgage interest, State taxes, and Charitable contributions. You know if you have paid any of the these without having to think about it.
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House Blend
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Re: Should I bother itemizing tax deductions?

Post by House Blend »

lumberingc wrote: Is it worth it to get an accountant?
No. If you can read and post questions on Bogleheads (and are willing to share financial details), an accountant would be a waste of money.

Accept that most people will not be able to claim more than the std deduction until they buy a home or have high income in a high tax state.

If you are near the break-even point, consider opening a Donor Advised Fund and put 10+ years of contributions in it. You'll get to deduct most of those contributions that way. (This is a form of deduction bunching.)
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Taco Knight
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Re: Should I bother itemizing tax deductions?

Post by Taco Knight »

Yeah, I had the same crestfallen reaction -- I had documented and counted and photographed a ton of donation receipts, in addition to a few others, and... Standard.

It was annoying not because I wouldn't have donated good-condition clothes and furniture otherwise, but because I took the time and effort to document it. Oh well!

Also, for peace of mind: Consider that the Standard Deduction assumes you have a modicum of business expenses. Also, consider how many legit business purchases are forgotten or not recorded. Trivial example, buying a pen and using it at work. Using your personal printer paper and toner to finish a project at home. Hell, using your home's electricity to do anything work-related!
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Re: Should I bother itemizing tax deductions?

Post by scouter »

EmergDoc wrote:Life isn't fair. The sooner you realize that, accept it, learn the rules, and start making it unfair to your benefit, the better off you'll be.
If I had a nickel for every time I've told my kids this...
ralph124cf
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Re: Should I bother itemizing tax deductions?

Post by ralph124cf »

For MFJ being in the 33% tax bracket means that if you had large deductions you would end up paying the AMT. You are probably also in the phase out zone for many legitimate deductions.

Ralph
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Re: Should I bother itemizing tax deductions?

Post by flyingbison »

If the standard deduction is higher than what your itemized deductions would be, then that's a free "bonus" for you. In order to have enough deductions to itemize, it means you had to spend a lot more money.
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Re: Should I bother itemizing tax deductions?

Post by jimb_fromATL »

It seems unfair that … I can't even deduct a completely legitimate expense (work related equipment, professional certification, professional conference attendance).
]Life isn't fair. The sooner you realize that, accept it, learn the rules, and start making it unfair to your benefit, the better off you'll be.
Try looking at it that you’re lucky enough to be making a lot more money than people who do get to deduct student loan interest. You have to be making probably over $300K to be in the 33% bracket— yet your itemized expenses are so low that they don’t even exceed the standard deduction.

To put it another way, you're getting a better tax break than people who itemize because the standard deduction is higher than your expenses actually justify.
Obviously, when I buy a house, I will be able to deduct interest payments which will push my deductions over the standard deduction so that every deduction item will count, but what can I do in the interim?
If you want a tax deduction, you could give enough money to charity to push your itemized deductions over the limit. Or you could just be glad that you don't have a lot of extra expenses eroding your income.

Bear in mind that buying a home is not really the magic bullet for tax savings that home builders and real estate agents might have you think.

First, only about one out of every three or four taxpayers exceeds the standard deduction and gets any benefit from itemizing to deduct mortgage interest anyway. Then if you are the one out of three or four whose property taxes and mortgage interest added to your state taxes and other itemized deductions do cause you to exceed the standard deduction, you just don’t pay quite as much tax.

The tax deduction on the income amount by which your itemized deductions exceed the standard deduction just reduces the effective percentage of all the extra property taxes and mortgage interest you're paying out. For example:
  • If you buy a home for $450,000 and pay 20% ($90,000) down and have a mortgage balance of $360,000 at 3.% for 15. years the payment for P&I will be $2486 per month. (And this is a reasonably conservative home for your income range.)

    A guess at property taxes of perhaps 1.25% of the home value being $5625 and 0.50% for homeowner's insurance ($2250) would make the total payment for PITI about $3142 per month. Adding perhaps 1% of the home value ($4500) for maintenance and repairs , the total cost to own the roof over your head is about $42,208 per year, $3517 per month.

    The interest for the first year would be $10,536. The total interest and property tax for itemizing would be $16,161.

    Itemizing $10,536 mortgage interest + $5625 property taxes + maybe $500 ad valorem taxes on cars, etc = $25,161.

    $25,161 exceeds the 2015 standard deduction of $12500. by $12,661.

    In the 33% tax bracket, that would reduce your federal tax by $4178. in taxes.

    So instead of paying $3517 per month to own the home, you effectively pay only $3,169 per month.

    With the 33% federal deduction, you're still paying $7,059 interest to the lender.
There are a lot of reasons to buy a home -- if you’re going to live there for several years to justify the closing costs and expenses. You are no longer the OP of OPM (Other Peoples’ Money) fame paying the rent to pay the mortgage, taxes, and insurance and profit to the landlord while he gets all the tax breaks plus the equity and appreciation in value of the property.

And if you are the one out of three or four tax payers who gets to itemize deductions, your mortgage interest will be effectively reduced by the tax break.

But if you think it’s worth it to pay a big chunk down and go into debt and be committed to a mortgage payment just to save some taxes by paying out a lot of interest to somebody else, you may want to rethink that plan.

jimb
feh
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Re: Should I bother itemizing tax deductions?

Post by feh »

flyingbison wrote:If the standard deduction is higher than what your itemized deductions would be, then that's a free "bonus" for you.
+1

OP - consider yourself lucky.
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Re: Should I bother itemizing tax deductions?

Post by whaleknives »

Toons wrote:Plug your numbers into turbo tax and see what deductions it shows you is most beneficial, Standard or Itemized.
:thumbsup This is the advantage of tax software: unexpected surprises. Mortgage, itemized was better. Mortgage paid off, changed to standard. Retired with health insurance premiums, back to itemized!
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Re: Should I bother itemizing tax deductions?

Post by nisiprius »

Since the two tax packages I've used allow you to enter and mark estimated numbers, I just enter some big fat rounded-up guesses for itemized deductions, and if the tax package shows (as it does these days) that the standard deduction is higher, I don't bother to enter accurate numbers.
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Re: Should I bother itemizing tax deductions?

Post by dubsem »

EmergDoc wrote:Life isn't fair. The sooner you realize that, accept it, learn the rules, and start making it unfair to your benefit, the better off you'll be.
+1 for gaming the system
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mouses
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Re: Should I bother itemizing tax deductions?

Post by mouses »

livesoft wrote: And I think it is pretty easy for folks to make the decision. There are the big 4 deductions on Schedule A: Property taxes, Mortgage interest, State taxes, and Charitable contributions. You know if you have paid any of the these without having to think about it.
Medical expenses. Total up insurance premiums, mileage, prescriptions especially now that BigPharma has gone into major greed mode jacking up prices, copays, dentist bills, eyeglasses, not hard for many people to go over the income % cutoff.
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Re: Should I bother itemizing tax deductions?

Post by livesoft »

mouses wrote:
livesoft wrote: And I think it is pretty easy for folks to make the decision. There are the big 4 deductions on Schedule A: Property taxes, Mortgage interest, State taxes, and Charitable contributions. You know if you have paid any of the these without having to think about it.
Medical expenses. Total up insurance premiums, mileage, prescriptions especially now that BigPharma has gone into major greed mode jacking up prices, copays, dentist bills, eyeglasses, not hard for many people to go over the income % cutoff.
I realize that everybody is different, but can you give an example?

We have always had employer-subsidized health insurance deducted from wages before it shows up in AGI plus we have used a FSA to cover copays, dentist bills, eyeglasses, so that doesn't show up in AGI either.

I love BigPharma greed mode as they were some of my best clients.
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Re: Should I bother itemizing tax deductions?

Post by mouses »

lumberingc wrote: It seems unfair that a small business owner can deduct all work related expenses (and often fraudulently deducts a lot of personal expenses), and I can't even deduct a completely legitimate expense (work related equipment, professional certification, professional conference attendance).
Why is business mileage deductible at a higher rate than charitable or medical mileage. Only the IRS knows.

It's been years since I've dealt with this part of schedule A, but I thought some professional expenses fell into the Misc. category. A quick peek at the schedule A instructions lists some.
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Re: Should I bother itemizing tax deductions?

Post by mouses »

livesoft wrote:
mouses wrote:
livesoft wrote: And I think it is pretty easy for folks to make the decision. There are the big 4 deductions on Schedule A: Property taxes, Mortgage interest, State taxes, and Charitable contributions. You know if you have paid any of the these without having to think about it.
Medical expenses. Total up insurance premiums, mileage, prescriptions especially now that BigPharma has gone into major greed mode jacking up prices, copays, dentist bills, eyeglasses, not hard for many people to go over the income % cutoff.
I realize that everybody is different, but can you give an example?

We have always had employer-subsidized health insurance deducted from wages before it shows up in AGI plus we have used a FSA to cover copays, dentist bills, eyeglasses, so that doesn't show up in AGI either.

I love BigPharma greed mode as they were some of my best clients.
Example of what? Medical expenses? Last year in round numbers: prescr $3800, Other $1200 (dental mostly), Medicare etc. premiums $4200, mileage $800. Year before I racked(sp?) up $10,000 in dental expenses.

You will be less delighted with BigPharma when they double or triple the prices of long existing meds you take.
Last edited by mouses on Wed Feb 17, 2016 2:10 pm, edited 1 time in total.
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telemark
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Re: Should I bother itemizing tax deductions?

Post by telemark »

flyingbison wrote:If the standard deduction is higher than what your itemized deductions would be, then that's a free "bonus" for you. In order to have enough deductions to itemize, it means you had to spend a lot more money.
Exactly. I'm old enough to remember when the standard deduction was much lower, so that it made sense for me to itemize. Now I get a bigger deduction with less effort on my part. I like the new way better.
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Re: Should I bother itemizing tax deductions?

Post by White Coat Investor »

mouses wrote:Why is business mileage deductible at a higher rate than charitable or medical mileage. Only the IRS knows.
Yes, super annoying for me. This year I could only come up with something like 500 business miles, but 4000 charitable miles. I figure those 4000 charitable miles are worth less than $200 to me. I figure that pays for the gas for about 1/4 of those miles and nothing for wear and tear.
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Re: Should I bother itemizing tax deductions?

Post by JupiterJones »

You could consider "batching" your deductions so that you take the standard deduction every other year, and itemize in the other years. You shift things around to maximize the deductions on the years you itemize. That what I do.

For example, a lot of my charitable giving is to institutions with academic fiscal years. So I can give a gift in the spring that counts in one of their fiscal years, then another gift in the fall that counts in their next fiscal year. Two "years" of contributions from me (from their perspective), but they fall in the same calendar year, so I can itemize them both. On my "standard deduction year", I don't donate a thing.

(You can do this with charities that have calendar fiscal years too, such as a church, but they'll just have to get used to you making a double-sized gift every other year in stead of your normal gift every year.)

I do the same sort of things with my property taxes. I don't escrow them, so I can control when they're paid each year. Each year's tax is not due until Feb of the following year. So I pay the previous year's tax in Jan or Feb, then pay the current year's tax later in December. Now I've doubled my property tax deduction. Again, I don't pay anything on the standard deduction years.

I haven't figured out any practical way to batch mortgage interest though. That's one you just have to bite the bullet on.
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Re: Should I bother itemizing tax deductions?

Post by Derby »

Owning a home in San Francisco puts me over the Standard Deduction every year with just property taxes alone. :oops: If only I didn't love living here so much.
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Re: Should I bother itemizing tax deductions?

Post by grabiner »

mouses wrote:
lumberingc wrote: It seems unfair that a small business owner can deduct all work related expenses (and often fraudulently deducts a lot of personal expenses), and I can't even deduct a completely legitimate expense (work related equipment, professional certification, professional conference attendance).
Why is business mileage deductible at a higher rate than charitable or medical mileage. Only the IRS knows.
If you deduct your own expenses rather than the standard mileage rate, business mileage allows you to deduct depreciation on the car, while charitable and medical does not.

The logic here is presumably average cost versus marginal cost. If your business provides its employees with cars for business use, it will pay the full cost of the cars, including depreciation and insurance. If your business expects employees to use their own cars, the cost should be the same; thus, you can deduct a mileage rate which includes all costs, or your employer can give you a non-taxable reimbursement at that rate.

In contrast, charity is an additional cost. If you drive 100 miles for a charity, you are driving a car which you already needed to buy and insure, so you can deduct only the cost of the gas and oil the car uses (or a standard rate based on the gas and oil costs).

The OP's complaint is probably related to the 2% rule. You can deduct business expenses, but only to the extent that they (plus other miscellaneous deductions) exceed 2% of adjusted gross income. This makes taxes simpler for a lot of taxpayers, but it creates inequities in many situations because the first 2% is loss.
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lumberingc
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Re: Should I bother itemizing tax deductions?

Post by lumberingc »

Thanks for the replies guys. I just wanted to make sure that at least some others are feeling the same pain. It's kind of like when you're on mile 24 of a marathon and you look to the left and see someone who is obviously hurting; it makes you feel better.
EmergDoc wrote:Life isn't fair. The sooner you realize that, accept it, learn the rules, and start making it unfair to your benefit, the better off you'll be.
Thanks dad

jimb_fromATL: Thanks for the post; that was excellent. I'm actually planning to buy a home valued at around $800,000-$1,000,000 at some point, so itemizing will work. Perhaps getting some practice isn't a bad idea. I also think that I may qualify for a home office deduction if I dedicate one room in my home to an office (as I do legitimately work from home part of the time).
House Blend wrote:
lumberingc wrote: Is it worth it to get an accountant?
No. If you can read and post questions on Bogleheads (and are willing to share financial details), an accountant would be a waste of money.
Ok; I'll take your advice. I don't think it would be worth the time/effort/giving away my personal information unless they could save me at least $500
Longdog wrote:No state income tax to deduct?
I presume that turbo tax does this for me. I guess I haven't paid my 2015 taxes yet, and I did significantly increase my income in 1/2015, so maybe I am complaining too soon.

-lumberingc
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Re: Should I bother itemizing tax deductions?

Post by mouses »

grabiner wrote:
In contrast, charity is an additional cost. If you drive 100 miles for a charity, you are driving a car which you already needed to buy and insure, so you can deduct only the cost of the gas and oil the car uses (or a standard rate based on the gas and oil costs).
Wear and tear.
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Re: Should I bother itemizing tax deductions?

Post by flyingbison »

lumberingc wrote:Thanks for the replies guys. I just wanted to make sure that at least some others are feeling the same pain.
I don't understand why you are feeling any pain about it. The standard deduction is higher than your itemized deductions, so you are getting to deduct more from your income than your actual allowable deductions would be.
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Re: Should I bother itemizing tax deductions?

Post by livesoft »

Derby wrote:Owning a home in San Francisco puts me over the Standard Deduction every year with just property taxes alone. :oops: If only I didn't love living here so much.
Ha! I lived in NY and did not own a home. State income taxes alone always put one over the Standard Deduction.
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Re: Should I bother itemizing tax deductions?

Post by JMacDonald »

When I paid off my condo, I am no longer itemizing. Actually, I like it better. I don't have to keep all of those bits of paper to itemize anymore. Life is simpler.
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Re: Should I bother itemizing tax deductions?

Post by Ron »

flyingbison wrote:I don't understand why you are feeling any pain about it. The standard deduction is higher than your itemized deductions, so you are getting to deduct more from your income than your actual allowable deductions would be.
:thumbsup :thumbsup :thumbsup

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Re: Should I bother itemizing tax deductions?

Post by trueblueky »

Longdog wrote:No state income tax to deduct?
If you're in a state with no income tax, you can deduct sales tax. The program figures the amount based on your income plus you can add the sales tax you paid when buying a car or certain other high-cost items.
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Re: Should I bother itemizing tax deductions?

Post by AAA »

For the first time in many years, I will not be itemizing deductions as the standard deduction is higher. At first I was surprised by this but then figured out that after I retired early last year I stopped paying the high income tax in the state where I had worked - the absence of that deduction is what brought me below the standard deduction.

I was initially disappointed but then "did the math" and was consoled by the fact that the IRS is giving me more of a deduction than I expected. It's just that if I made for instance a charitable contribution I had figured that the government was paying about 25% of it because it was deductible. I'll just have to change my thinking about these things.
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Re: Should I bother itemizing tax deductions?

Post by unclescrooge »

lumberingc wrote: I'm actually planning to buy a home valued at around $800,000-$1,000,000 at some point, so itemizing will work. Perhaps getting some practice isn't a bad idea. I also think that I may qualify for a home office deduction if I dedicate one room in my home to an office (as I do legitimately work from home part of the time).

-lumberingc
Wait till you get hit with AMT...then you'll find you can't deduct state or property taxes either.

I don't believe the home office deduction makes sense for home owners. This will be recaptured when you sell the home...maybe someone with experience can weigh in.
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Re: Should I bother itemizing tax deductions?

Post by montanagirl »

I itemized for the first time this year, because the deductions pass through to the state return and our standard deduction here is quite low. So it helped with that.

Also, aside from bunching, you may want to enter your deductions in full detail in the event you have a casualty next year, or learn some late-2015 medical expense wasn't covered after all. Hang on to your records of course...Then you can amend, add the new deductions and get a refund. T
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Re: Should I bother itemizing tax deductions?

Post by lumberingc »

flyingbison wrote: I don't understand why you are feeling any pain about it. The standard deduction is higher than your itemized deductions, so you are getting to deduct more from your income than your actual allowable deductions would be.
I think my complaint is reasonable. If someone made $2,000 less than me but had $2,000 less in work related expenses, they would end up with a higher net income. This is obviously unfair. I have to pay for work-related expenses with post-tax income. Complete nonsense.
JMacDonald wrote:When I paid off my condo, I am no longer itemizing. Actually, I like it better. I don't have to keep all of those bits of paper to itemize anymore. Life is simpler.
cool
unclescrooge wrote:Wait till you get hit with AMT...then you'll find you can't deduct state or property taxes either.
I doubt I would ever have enough deductions to get the AMT
I don't believe the home office deduction makes sense for home owners. This will be recaptured when you sell the home...maybe someone with experience can weigh in.
My father has a home office, and he says that it's great because you can deduct a portion of utilities (electricity, etc) prorated to square footage. i have never heard of any issue when you sell the home, but I wouldn't plan to sell for a very long time (perhaps never)

-lumbering
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Re: Should I bother itemizing tax deductions?

Post by flyingbison »

lumberingc wrote:
flyingbison wrote: I don't understand why you are feeling any pain about it. The standard deduction is higher than your itemized deductions, so you are getting to deduct more from your income than your actual allowable deductions would be.
I think my complaint is reasonable. If someone made $2,000 less than me but had $2,000 less in work related expenses, they would end up with a higher net income.
:confused

That doesn't make any sense, nor does it have anything to do with itemizing deductions.

If you would really prefer to itemize your deductions, perhaps you should do so, and take a lower amount off your income than the standard deduction, resulting in higher taxes. I don't know if the IRS would allow it, though. They would probably send you a notice of correction and a refund. Actually, it looks like this is an option for you. You are free to itemize, even if your deductions are less than the standard deduction. Just check the box in item #30 on Schedule A. Problem solved.
Last edited by flyingbison on Fri Feb 19, 2016 10:40 am, edited 1 time in total.
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Re: Should I bother itemizing tax deductions?

Post by JupiterJones »

lumberingc wrote: My father has a home office, and he says that it's great because you can deduct a portion of utilities (electricity, etc) prorated to square footage
Yes, but in order to (legally) do that, you have to use that portion of your home exclusively as a home office. If you also use that same area as a sewing room or guest bedroom, or if you get on the computer there to play Call of Duty after five o'clock, you can't claim it as a home office.

So you're basically losing "livable" square footage for the benefit of getting that deduction. It's not as much of a free lunch as many people think.
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an_asker
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Re: Should I bother itemizing tax deductions?

Post by an_asker »

flyingbison wrote:
lumberingc wrote:
flyingbison wrote: I don't understand why you are feeling any pain about it. The standard deduction is higher than your itemized deductions, so you are getting to deduct more from your income than your actual allowable deductions would be.
I think my complaint is reasonable. If someone made $2,000 less than me but had $2,000 less in work related expenses, they would end up with a higher net income.
:confused

That doesn't make any sense, nor does it have anything to do with itemizing deductions.

If you would really prefer to itemize your deductions, perhaps you should do so, and take a lower amount off your income than the standard deduction, resulting in higher taxes. I don't know if the IRS would allow it, though. They would probably send you a notice of correction and a refund. Actually, it looks like this is an option for you. You are free to itemize, even if your deductions are less than the standard deduction. Just check the box in item #30 on Schedule A. Problem solved.
I think more reasonable is my complaint.

If we were to have been living above our means (by purchasing that mansion), we would be itemizing our deductions. But we would not have had money to donate to charity.

Now that we are living within our means, we have money to donate to charity; however, we cannot itemize our deductions. So, the money we donate to charity comes 100% out of our savings ... as opposed to folks who itemize their deductions and have money to spare. For them, when they "donate $10,000" to charity, really Uncle Sam has chipped in with $2,500, $2,800 or ...

Isn't that unfair? :oops:

But I am not complaining. I know that the world is not fair. :-)
randomguy
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Re: Should I bother itemizing tax deductions?

Post by randomguy »

JupiterJones wrote:
lumberingc wrote: My father has a home office, and he says that it's great because you can deduct a portion of utilities (electricity, etc) prorated to square footage
Yes, but in order to (legally) do that, you have to use that portion of your home exclusively as a home office. If you also use that same area as a sewing room or guest bedroom, or if you get on the computer there to play Call of Duty after five o'clock, you can't claim it as a home office.

So you're basically losing "livable" square footage for the benefit of getting that deduction. It's not as much of a free lunch as many people think.
You also lower the cost basis of your house through depreciation so you could end up having to repay some of those savings (100k of depreciation + 500k of gains, means you are paying taxes on 100k. 500k seems like a lot but remember that number isn't inflation adjusted so if you plan on living there 20+ years hitting it might not be as hard as you expect)

The other thing is the percentages tend to be small. Using that spare bedroom (150 sq ft) in a 2500 sqft house, means you get to deduct 7% of utilities. If you have like 10k/yr of deductible expenses, thats a 700 buck deduction.
tdogz
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Re: Should I bother itemizing tax deductions?

Post by tdogz »

unclescrooge wrote:[...] I don't believe the home office deduction makes sense for home owners. This will be recaptured when you sell the home...maybe someone with experience can weigh in.
If you use the new 'simple' home office deduction then you get a flat $5 per square foot and there is no recapture when you sell the home. This has been available since 2013.

https://www.irs.gov/Businesses/Small-Bu ... -Deduction
Chadnudj
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Re: Should I bother itemizing tax deductions?

Post by Chadnudj »

lumberingc wrote: tax filing status: married, filing jointly
marginal tax rate: 33%
Tax deductions: student loan interest (both me and spouse-no longer qualify as income too high), charitable donations, work related expenses (both me and spouse), ?home office (I don't think I actually quality).


Obviously, when I buy a house, I will be able to deduct interest payments which will push my deductions over the standard deduction so that every deduction item will count, but what can I do in the interim?
-Lumbering
FYI (and I suspect you know this): Even after you own a house, you still will not be able to deduct student loan interest at your income/marginal tax bracket level. My wife and I own, and are in that 33% bracket, and cannot deduct student loan interest.

We also own a rental property that has losses (long story), and haven't been able to claim any of those, either....however, we do have booked passive losses that we can at some point down the line use to offset capital gains from selling the rental property or claim in a year where our income drops far enough to make them useful.
NotWhoYouThink
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Re: Should I bother itemizing tax deductions?

Post by NotWhoYouThink »

If we were to have been living above our means (by purchasing that mansion), we would be itemizing our deductions. But we would not have had money to donate to charity.

Now that we are living within our means, we have money to donate to charity; however, we cannot itemize our deductions. So, the money we donate to charity comes 100% out of our savings ... as opposed to folks who itemize their deductions and have money to spare.

Are you saying people have money to spare because they itemize their deductions? Or just that they must have money to spare if they have home mortgage interest but they still give to charity?

For most of us MFJs, the first $12,600 of "deductions" don't help us reduce our taxes because we would get the standard deduction anyway. The house is almost paid off, so really the mortgage interest and property taxes and the first $5000 of state income tax don't reduce our federal tax, because those amounts just get us even with the standard deduction. Lucky us - we still get some deductions from charitable contributions and the rest of the state income tax. Except when we pay AMT, then we just get mortgage interest and charity. But lucky us again, we don't have big medical expenses!

Do you pay state income tax, or are you able to deduct sales tax? Maybe if you bunch charitable deductions every other year as mentioned above you can itemize and save money on taxes some year.
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mister_sparkle
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Re: Should I bother itemizing tax deductions?

Post by mister_sparkle »

I passed up an opportunity to get a deduction for medical expenses from 2015, for the simple reason that I just didn't feel like going back to every single doctor's visit receipt and add everything up. I got LASIK surgery last year, which pushed our out of pocket expenses, including premiums, to past the deduction threshold, but in the end I decided my time was worth more than the few hundred dollars in taxes I would have gotten back.

Our Schedule A deductions are very simple, and I like to keep it that way -- mortgage interest, property taxes, state income taxes, and charitable deductions.

Life is short. :sharebeer
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grabiner
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Re: Should I bother itemizing tax deductions?

Post by grabiner »

flyingbison wrote:If you would really prefer to itemize your deductions, perhaps you should do so, and take a lower amount off your income than the standard deduction, resulting in higher taxes. I don't know if the IRS would allow it, though. They would probably send you a notice of correction and a refund. Actually, it looks like this is an option for you. You are free to itemize, even if your deductions are less than the standard deduction. Just check the box in item #30 on Schedule A. Problem solved.
The reason for this rule is that many states allow you to itemize only if you itemize your federal deductions. If itemizing deductions costs you $50 of federal tax but saves you $100 of state tax, it makes sense.
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lumberingc
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Re: Should I bother itemizing tax deductions?

Post by lumberingc »

an_asker wrote:I think more reasonable is my complaint.

If we were to have been living above our means (by purchasing that mansion), we would be itemizing our deductions. But we would not have had money to donate to charity.

Now that we are living within our means, we have money to donate to charity; however, we cannot itemize our deductions. So, the money we donate to charity comes 100% out of our savings ... as opposed to folks who itemize their deductions and have money to spare. For them, when they "donate $10,000" to charity, really Uncle Sam has chipped in with $2,500, $2,800 or ...

Isn't that unfair? :oops:

But I am not complaining. I know that the world is not fair. :-)
Your complaint is actually less reasonable in my opinion. I don't believe in the charitable donation tax deduction. I think that people should make donations with post tax income. For me to pay takes on money I used for direct work related expenses (licensing fees, et cetera) is completely absurd.
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lumberingc
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Re: Should I bother itemizing tax deductions?

Post by lumberingc »

randomguy wrote: You also lower the cost basis of your house through depreciation so you could end up having to repay some of those savings (100k of depreciation + 500k of gains, means you are paying taxes on 100k. 500k seems like a lot but remember that number isn't inflation adjusted so if you plan on living there 20+ years hitting it might not be as hard as you expect)

The other thing is the percentages tend to be small. Using that spare bedroom (150 sq ft) in a 2500 sqft house, means you get to deduct 7% of utilities. If you have like 10k/yr of deductible expenses, thats a 700 buck deduction.
I believe there is a one time $500,000 exemption for taxes on capital gains from sale of a primary home for a married couple

"When you sell your primary residence, you can make up to $250,000 in profit if you're a single owner, twice that if you're married, and not owe any capital gains taxes."

source: http://www.bankrate.com/finance/money-g ... ins-1.aspx
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lumberingc
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Re: Should I bother itemizing tax deductions?

Post by lumberingc »

JupiterJones wrote:Yes, but in order to (legally) do that, you have to use that portion of your home exclusively as a home office. If you also use that same area as a sewing room or guest bedroom, or if you get on the computer there to play Call of Duty after five o'clock, you can't claim it as a home office.

So you're basically losing "livable" square footage for the benefit of getting that deduction. It's not as much of a free lunch as many people think.
I actually legitimately must use a home office for part of the work I do, so I think it may make sense for me at some point.
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