Taxpayers are allowed by the IRS to either itemize deductions or take the standard deduction. Itemization takes place on Schedule A. Watch this video to find out more about itemizing deductions. Note: The information included in this video is specific to tax year 2012.
Video transcript:
Hello, I'm Jill from TurboTax with important information about using the Schedule A form to itemize your tax deductions.
The Internal Revenue Service allows taxpayers to claim either itemized deductions or the standard deduction, whichever is larger. If you choose to itemize, you must report all of your deductible expenses on a Schedule A form and attach it to your tax return.
The Schedule A form is only one page in length and has seven sections, each of which relates to a different category of itemized deductions. These seven categories cover medical and dental expenses, state and local taxes, interest payments, such as mortgage and investment interest, charitable donations, casualty and theft losses and two separate categories of miscellaneous deductions.
As you prepare Schedule A, you need to calculate your total expenses in each category. However, not all expenses on Schedule A are 100 percent deductible. This is because you must reduce the total of some of your expenses by a percentage of your adjusted gross income, or AGI as it's commonly referred to.
If you report medical and dental expenses on Schedule A, you must reduce the total by 7.5 percent of your AGI. For example, suppose your tax return reports an AGI of $100,000. If you report $10,000 of medical expenses on Schedule A, only $2,500 is deductible on your tax return. This is because you must reduce the expenses by $7,500, which is equal to 7.5 percent of your AGI.
You apply a second AGI limitation to your "job expenses and certain miscellaneous deductions," but instead of 7.5 percent, you only reduce these expenses by 2 percent of your AGI.
Lastly, you should always remember that Schedule A is an attachment to Form 1040. If you choose to file your tax return on a 1040A or 1040EZ, you cannot itemize deductions with Schedule A. But remember, when you prepare your tax return with TurboTax, we'll ask you simple questions and do all the math to determine whether itemizing or taking the standard deduction will save you the most money.
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