Who here has itemized their deductions in the past? I’m curious to understand what circumstances would lead someone to itemize their deductions, or whether it’s usually true that one is better off taking standard deductions.
I thought that 2012 would be the year I could itemize deductions. I had a lot of expenses related to job search while I was in business school, education itself, as well as relocation. I also made a number of charitable donations. Still, unless I did something wrong on my tax forms, TurboTax tells me I’m still better off claiming the standard deduction instead of itemizing.
Moving expenses, student loan interest, and certain education expenses are pre-AGI deductions, so they have no impact on itemized/standard. Any education tax credits are also separate from the itemized/standard deduction. Basically the big itemized deductions are: property tax, charity contributions, state income tax (or state sales tax, you can deduct either or but not both), mortgage interest, and medical expenses.
Keep in mind that only a minority of tax payers itemize, I think its somewhere in the area of only 1/3 of filers and they are generally wealthier taxpayers. It’s not easy to itemize your deductions, unless you own your house. Even then if you’re married the standard deduction is like 11,500 which is a tough hurdle to get over. I will begin itemizing in 2013 since I’m buying a house and I’m single. Mortgage interest and property taxes alone will get me over the standard deduction.
I never itemized except when I had mortgage interest expense. Only then did it ever make sense to itemize additional things.
Itemizing is a PITA. It’s one of those areas where software like turbotax is actually more frustrating than just filling the form in by hand.
If you have expenses that you can argue are part of Numi Career Consulting and which pass the laugh test, then it makes sense to expense them there, since you can start deducting from the first dollar, rather than have to wait for the sum to surpass the standard deduction. You’ll get to use your standard deduction on top of that, too.
Usually mortgage interest is what puts people over for the standard deduction-- assuming they’re early into their mortgage and principal (and thus interest paid for the year) is still high.
there are some learning credits you could take advantage of, but that wouldnt go under schedule A (itemized deductions)
The key is to utilize deductions FOR adjusted gross income and then worry about deductions FROM adjusted gross income (aka schedule A deductions). deductions FOR agi bring your income down-- and then you can still decide on taking the standard deduction or itemizing.
sadly, I can’t recall which job search expenses goes under atm.
you’re only better off taking standard if your itemized deductions are lower (obviously), or if it’s so close to the standard (5950 for single and 11900 for married) that it’s not worth the hassle of keeping all the extra documentation, then one might just take the standard. The standard is pretty much there to relieve some of the tax paying burden, if the tax payer so choose.
to expense “numi consulting” stuff you’d have to show you operated in a fashion that left you to determine your own profit or loss. These expenses (and income) from your self employment would go on schedule C, which would carry over to form 1040-- where it is then added with your wages (w-2 income). From that point you would minus your standard deduction or itemized schedule A deductions.
I itemize deductions. My taxes are fairly complex, given I have income stream from my job, indepdent contractor work, rental income, and then investment income. I actually caught my CPA in errors last year (and she billed me for that extra time SMH), so decided to just try it myself this year.
I didn’t read all the posts, so some of this may repeat what others have said.
First, there are three different types of deductions that some have discussed.
There are “above-the-line”, or “Page 1” deductions, also called “deductions FOR AGI”. It is a deduction FOR AGI, because you subtract these deductions in order to find your Adjusted Gross Income. These are usually expenses related to work, such as non-reimbursed business expenses, moving because of a new job, looking for a new job, or your student loan interest (because student loans are for education, which prepares you for a job). Contributions to a Traditional IRA also go here.
Then there are “below-the-line”, or “itemized” deductions, or “deductions FROM AGI”, or “Schedule A Deductions” (aptly named because they go on Schedule A of the 1040.) These include medical expenses (but only the part that is more than 7.5% of your AGI), expenses paid to your tax accountant or broker, property/casualty losses (again, subject to limitations), mortgage (not property) insurance, EITHER state sales tax OR state income tax, property taxes, and yes, mortgage interest (but not principal). [EDIT: Charitable contributions go here, too.]
Business expenses go on Schedule C. These include all expenses that are “ordinary and necessary” to carry out the operations of Numi Business Consulting. This includes your rent, your cable/internet, mileage, etc. that you spend for business. (These expenses do NOT go on Schedule A. They are generally NOT subject to income limitations, nor do you have to exceed a certain threshold to deduct them.)
There may be other expenses that go on Schedule E, if you have rents or royalties. If you own a house that you rent out, for example, then all expenses of owning and maintaining the house are part of Schedule E. If you get a oil and gas royalty interest, then you can deduct severance tax and depletion.
If you own a farm (Iteracom, take note for your golden years), then all farm expenses go on Schedule F. It is virtually identical to Schedule C, but it’s specifically designed for farms. (And I have no idea why.)
Education - Did you get a 1098-T from the school? It should have all your tuition and fees included on it. You can deduct this as a Page 1 deduction. However, books and computers and other stuff generally is not eligible. Student health fees, activity fees, room and board, etc. are also not deductible.
Relocation - There are some strange tests to pass, like “Is the new job more than 50 miles further from your home than your old job?” Assuming you pass the tests, you can either claim actual moving expenses or claim a mileage deduction for moving. (I think–I’ve rarely come across this. Better check to be sure.)
Charitable Contributions - These are a Schedule A deduction. (Note that they are below the line.)
You have to have almost $6,000 in Schedule A deductions to warrant itemizing. ($12,000 if you’re married.) Otherwise, it’s more economical to take the Standard Deduction, because the Standard Deduction is more than your itemized expenses. Remember–you can either itemize your deductions or take the $12,000 Standard Deduction. You can never take both.
Generally, what most others have said is true. I have rarely, if ever, seen a person itemize their deductions unless they own their own home. Then you can take the mortgage interest and property taxes. This is what usually pushes people over the $12,000 threshhold.
Not true. You can itemize if your state and local taxes exceed the standard deduction. The current ~10k standard is easily exceeded if you make a decent income and live in NYC or San Fran.
I know nothing about state or local income tax. I live in a state that doesn’t charge income tax. (Yay!) However, if 9.2% for CA is correct, then 12,000/.092 = about $130,000, so this passes the “smell test”.
So, in New York City, you have to pay Federal AND State AND City AND County income tax, right? Do you get to deduct both the State AND City AND County income taxes? Or just the State?
Hi All, thanks for the thoughts. Glad I posted my question here, since there are quite a few folks that are much more knowledgeable about this tax stuff than I am.
General rule of thumb as someone mentioned before is that need for itemization is correlated with wealth and income. I used to take the standard deduction until I started earning a significant income, after which I started itemizing. If you’re entry level or straight out of b-school it’s likely that you’re still taking the standard; either that or you’re seriously underpaid.
Thanks for the pro-tip but I seriously doubt you itemize considering your comments on how making just under 130k in NYC makes one “wealthy.”
My mind is full of f*ck right now that Numi our resident “Hedge Fund Analyst” does not itemize considering his home base is NYC. Hard to believe? Or is it?
^^^ It’s not funny that’s why I didn’t end that post with a “LMAO.”
Having worked for a 1 bil + long/short fund I know the job titles and “Hedge Fund Analyst” is not one of them. Generally speaking I want to believe in people and only in the US can someone go from nothing to something but his story has never added up to me and this thread confirms that.
Not sure how you came to that conclusion. I don’t think you’ve ever worked at a hedge fund (at least in an investing role), given your general lack of investment acumen as well as your inability to recognize that titles such as equity analyst, investment analyst, analyst at a hedge fund, hedge fund analyst, and so forth are used fairly interchangeably in the industry. You also don’t seem to realize that most buy-side compensation is incentive-driven and back-end loaded. But since you’re not actually an investment professional, it would be unrealistic for me to assume that you’d actually know these things.
Also, it doesn’t require a discerning intuition to figure out that the two years spent in business school (or any full-time schooling for that matter) represent some of the lowest income years for most people. And as for why I don’t itemize in New York…maybe it has something to do with how I don’t have a mortgage and only lived/worked here for a few months last year? Notwithstanding these finer details, you did a fantastic job with your detective work.
Let’s be real here. You’re a walk in the park for me Blake. I deal with people that are infinitely more difficult and impetuous than you. I’m sure you know what I mean, since you’ve also worked at a hedge fund before…right? Or maybe that’s just me calling your bluff
To everyone else (krazykanuck, bchadwick, MoreMoneyPleas, Greenman72, iheartiheartmath, etc.), thanks for the thoughtful advice!
So you graduated in May of last year and did not find employment until the end of October? That is your story. Wow, a real BSD. We should all take career consulting advice from you. And previously working “front office” in NYC you never had to itemize? Seriously dude, get back in your parent’s basement.
