Dos and don'ts of itemized deductions

Dos and don'ts of itemized deductions

The rules change yearly, but you have to learn them to play the game

Last updated: January 2015

Itemized deductions can come and go like the weather: Each year Congress changes something, the Internal Revenue Service issues opinions, and tax courts make new rulings. If you like a challenge, learning this year's itemized deduction options is like playing an invigorating game of chess. If you don't, it's a tedious round of hide-and-seek. But either way, it's worth knowing the rules among more-common itemized deductions, as outlined in our dos and don'ts below.

Charitable donations

Do pay attention to donation rules. The IRS requires receipts for all deductible donations. All charitable deductions, no matter how small, must be substantiated either by a canceled check; bank record containing the charity’s name, donation amount, and date; or a detailed receipt from the charity. Otherwise the contribution cannot be an itemized deduction.

Do collect your charitable acknowledgements, receipts, and cancelled checks in one place. If you make cash donations, you'll need either a bank statement or a written communication from the charity noting the charity name, your donation amount, and the date. For more, check IRS Publication 526, "Charitable Contributions."

Don't claim donations of furniture, clothing, and other household goods that weren't in at least good condition when you gave them. While the IRS rule aims to weed out junk donations, taxpayers may claim an itemized deduction of more than $500 for any single item in any condition as long as a qualified appraisal is included with their return.

Medical expenses

Do deduct premiums for the Medicare Part D prescription drug insurance program, as well as other health-insurance premiums you pay yourself. The premiums for long-term-care insurance are deductible on a sliding scale according to your age.

Do deduct gas mileage expenses for your car when used for medical reasons. The 2014 rate for such deductions was 23.5 cents per mile for medical travel.

Do read the IRS list of deductible medical and dental expenses in IRS Publication 502, "Medical and Dental Expenses." The following costs, for example, are deductible to the extent that they address a health issue: wigs recommended by a doctor for the mental health of a patient suffering hair loss due to disease, special mattresses and bed boards, back supports, elastic hosiery, childbirth classes (fees for the mother only), and remedial reading instruction for dyslexic children.

Don't expect much. You can only deduct unreimbursed medical and dental expenses that exceed 10 percent of your adjusted gross income (for those age 65 and older, the threshold is 7.5 percent though 2016). But if you're self-employed, your health-insurance premiums may be 100 percent deductible. See Publication 502 for eligibility criteria.

Retirement accounts

Do contribute to an IRA if you're eligible. Taxpayers younger than 50 can put in up to $5,500 for 2014; those 50 and older can sock away $6,500. For 2014, if you're single and covered by a retirement plan at work, your deduction for contributions to a traditional IRA will be phased out if your adjusted gross income is more than $60,000 but less than $70,000; the limits are $96,000 but less than $116,000 for joint filers. (After those upper limits, you get no deduction.) You have until the filing deadline to make a contribution. See IRS Publication 590, “Individual Retirement Arrangements,” for more information.

Do fund a SEP IRA if you made money from self-employment last year. 

—Tobie Stanger (@TobieStanger on Twitter)

See our Tax Guide for more advice and tips on preparing, filing and saving on your income tax return.

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