Itemized Tax Deduction Instructions & Help

Can I deduct my gambling losses?

If you itemize your deductions, you can deduct your gambling losses to the extent of your gambling income.

For example, if you report $5,000 in gambling income on your W-2G, you can deduct up to $5,000 of your gambling losses. If you use the Standard Deduction instead of Itemized Deductions, gambling losses cannot be deducted.

What if I make an IRA contribution in 2015?

Include any IRA or Roth IRA contributions that you have made or will make on or before April 15th, 2015 that you designated as IRA contributions for your 2014 tax return.

Contributions postmarked on or before April 15th are considered to be made by the deadline.

What are miscellaneous expenses not subject to the 2% limitation?

Miscellaneous expenses not subject to the 2% limitation include:
  1. Amortizable bond premium on bonds acquired before October 23, 1986
  2. Federal estate tax on income in respect to a decedent
  3. Impairment-related work expenses of a disabled person
  4. Deduction for repayment of amounts under a claim of right if over $3,000
  5. Certain unrecovered investment in a pension
  6. Loss from other activities from Schedule K-1 Box 2

Is my scholarship or grant taxable?

Scholarships and grants are not taxable if used for tuition, fees, books, supplies, or equipment required for your classes at a qualified school.

If a scholarship or grant is taxable, you will generally receive a W-2 (W2) with the taxable amount on it. If you didn't receive a W-2 (W2), enter only the amounts you used for expenses other than tuition and course-related expenses. For example, amounts used for room, board, and travel are taxable income.

What if I don't know how much sales tax I paid during 2014?

Sales tax is only deductible if it is more than your state income taxes you withheld from your W-2 (W2) forms and paid during 2014.

If you do not know the actual amount of sales tax you paid during the year, you can use the Sales Tax Deduction Calculator on the IRS website or you can use the Sales Tax Worksheet in the Schedule A instructions which can be downloaded from the IRS website.

What is 1099-Q income?

Most distributions from a 529 education plan shown on a Form 1099-Q are not taxable and are not shown anywhere on your tax return. If your qualified education expenses during 2014 are equal to or more than the distribution shown in Box 1 of the Form 1099-Q, then the distribution is not taxable and is not reported on your tax return.

If your qualified education expenses during the year are less than the 529 plan distribution shown in Box 1 of the 1099-Q, then part of the distribution may be taxable. Only the portion of the distribution that is earnings is taxable income, and only those earnings that are allocated to the part of the distribution that was not used for education expenses is taxable.

For example, if your 1099-Q Box 1 shows a distribution of $10,000 and box 2 shows earnings of $2,000. Then if you did not use any of the $10,000 for qualified education expenses, then the full $2,000 in earnings is taxable income that you should enter on the Other Income screen as miscellaneous income. Use a description of "1099Q taxable income" in the miscellaneous income description box.

Continuing with the example, if you had $5,000 in qualified education expenses instead of zero, then only $1,000 of the $2,000 in earnings reported on Box 2 of the 1099-Q would be reported as taxable income on your return. If you had $9,000 in qualified education expenses then you would only report $200 of the $2,000 as taxable income (only $1,000 out of the $10,000 distribution wasn't used for education expenses so only 10% of the earnings in Box 2 are taxable).

Is my state refund taxable?

Your state refund is NOT taxable if you took the Standard Deduction on last year's tax return instead of itemizing your deductions on Schedule A. The general rule is that your state refund is taxable if you deducted your state tax payments on last year's tax return. However, there are a few exceptions that may reduce your taxable state refund or make it nontaxable.

Do I need to enter my household employee wages as Other Income if I received a W-2 (W2)?

No. Only enter any wages received as a household employee for which you did not receive a Form W-2 (W2). If you received a W-2 (W2), enter your information in the W-2 (W2) section of your income.

Why do I need to enter my Roth IRA contributions?

Roth IRA contributions may qualify for the Retirement Savings Contributions Credit if your income is not too high to claim the credit. Once you enter your Roth IRA contributions, we'll calculate the Retirement Savings Contributions Credit based on your income and any other retirement contributions you made such as 401(k) and regular IRA contributions.

The Retirement Savings Contributions Credit is only available to taxpayers with adjusted gross incomes of $60,000 or less for Married Filing Jointly, $45,000 for Head of Household, and $30,000 for Single taxpayers.

What types of retirement contributions are eligible for the Retirement Savings Contributions Credit?

You may be able to take the Retirement Savings Contributions Credit if you or your spouse made contributions to a traditional IRA, Roth IRA, 401(k), 403(b), 457, SEP, SIMPLE plan, 501(c)(18), or other qualified retirement plans. The Retirement Saver's Credit is only available to taxpayers with adjusted gross incomes of $60,000 or less on a joint return, $45,000 for Head of Household, and $30,000 for Single taxpayers.

Where can I get my total basis in IRAs for 2013 and earlier years?

Look on Form 8606, Line 14 of your 2013 tax return to get the total IRA basis from prior years. If your 2013 tax return did not have a Form 8606, then find the Form 8606 from your 2012 tax return to get the total IRA basis from prior years. If you don't have a prior year Form 8606 or your prior year Form 8606 is inaccurate, calculate your IRA basis from prior years by adding up all of the IRA contributions you have made over the years, then subtracting the IRA deductions you have taken on your tax returns over the years. The difference is the total amount of nondeductible IRA contributions you have made in prior years and is your total IRA basis.

Where can I get my spouse's total basis in IRAs for 2013 and earlier years?

Look on your spouse's Form 8606, Line 14 of your 2013 tax return to get the total IRA basis from prior years. If your 2013 tax return did not have a Form 8606 for your spouse, then find the Form 8606 for your spouse from your 2012 tax return to get the total IRA basis from prior years. If you don't have a prior year Form 8606 for your spouse or your spouse's prior year Form 8606 is inaccurate, calculate your spouse's IRA basis from prior years by adding up all of the IRA contributions your spouse has made over the years, then subtracting the IRA deductions your spouse has taken on your tax returns over the years. The difference is the total amount of nondeductible IRA contributions your spouse has made in prior years and is your spouse's total IRA basis.

What are deductible personal property taxes?

Taxes that are based on the value of your personal property such as cars, R.V.s, and boats are deductible expenses. However, fees and taxes that are not based on the value of the property are not deductible.

Donations to Charities

Deductible charitable contributions include:
  • Contributions made to a qualified organization.
  • Unreimbursed out of pocket expenses (office supplies, uniforms, long distance phone calls, etc.) for volunteer work for a qualified organization
  • Transportation expense for work on behalf of a charitable organization

Nondeductible charitable contributions:
  • Contributions made to unqualified organizations
  • Contributions made directly to needy individuals
  • The value of service that you perform for a charitable organization

How do I value my clothing donations?

The amount of the tax deduction for used clothing donated to a qualified charity is the value of the clothing if it was sold at a used clothing store.

You cannot take a deduction for clothing you donate unless the clothing or household items are in good used condition or better.

Medical Expenses

Deductible medical expenses include unreimbursed medical expenses for you, your spouse, and any dependents that are deductible on Schedule A to the extent that the expenses exceed 10% (7.5% if 65 or older) of your adjusted gross income. Enter the full amount of your medical expenses, and we'll calculate if the medical expenses exceed the 10% (7.5% if 65 or older) threshold.

The definition of what constitutes a medical expense is very broad and includes expenses to diagnose, cure, mitigate, treat, or prevent disease. However, cosmetic surgery is not deductible unless it is related to disfigurement from a congenital abnormality, accidental injury, or a disfiguring disease. Other examples of nondeductible medical expenses are nonprescription drugs, doctor prescribed travel for "rest", and expenses for the improvement of your general health such as a weight-loss program or health club fees (the weight-loss program is deductible if it is to treat a specific disease).

Examples of deductible medical expenses include abortions, acupuncture, alcoholism treatment, ambulance costs, birth control pills, child birth classes, chiropractors, contact lenses, crutches, dentist, dentures, doctor fees, drug addiction treatment, prescription drugs, dyslexia reading programs and tutors, eye examination and glasses, guide dogs, health insurance, hearing aids, hospital bills, insulin, laboratory fees, long-term care insurance, nursing home if for medical treatment, optometrist, osteopath, physical therapy, psychiatrist, psychologist, travel to medical clinics, vasectomy, and wheelchair. This list does not contain every medical deduction available.

Job Expenses

Unreimbursed employee expenses can potentially be deducted on Form 2106. Examples of employee expenses are union dues, professional dues, safety shoes, safety glasses, protective clothing, uniforms, transportation (other than commuting), business cards, licenses, trade magazines and subscriptions, meals and entertainment (50% is nondeductible), briefcase, office decorations, office supplies, expenses related to temporary out-of-town job assignments, business travel, certain education expenses, certain job search expenses, malpractice insurance, and any other expense that relates to your job.

What if my employer reimburses my job expenses?

If your employer reimburses your expenses under an accountable plan, you don't need to report any job expenses on your tax return since the reimbursement is excluded from your W-2 (W2) wages. If your employer reimburses you under an unaccountable plan and the reimbursement is included as income on your W-2 (W2), you need to report your job expenses to see if they can be deducted.

Can I include 401K contributions as IRA contributions?

401K contributions and other retirement contributions shown on your W-2 in Box 12 should not be entered as IRA contributions. The 401K and retirement contributions shown on your W-2 in Box 12 have already reduced your W-2 wages and should not be entered again as an IRA contribution.

What types of income are NOT taxable?

Don't overpay the IRS by including nontaxable income on your tax return.

The following income is generally NOT taxable income. There are always exceptions. For example, inheritances are generally not taxable, but if you inherited an IRA account, you will be taxed when you receive IRA distributions. But for most people, these types of income are NOT taxable:
  1. Life insurance proceeds
  2. IRA and Pension rollovers
  3. Child support payments
  4. Inheritances
  5. Gifts
  6. Workers Compensation
  7. Disability payments if you paid the premiums on the policy. If your employer paid the policy, then the disability payments are taxable. If you paid part of the policy, then part of the disability payments you paid are nontaxable.
  8. Court damages for personal physical injuries or physical sickness. Punitive payments are taxable.
  9. Health and accident benefits
  10. Federal income tax refund
  11. State income tax refund (if you took the standard deduction last year)
  12. Most scholarships, fellowships, and Pell grants
  13. Foster care payments (certain restrictions for individuals over age 18 in foster care)
  14. Gain on the sale of your personal residence is usually nontaxable. The gain might be taxable if you lived in the residence less than two years or if the residence has ever been used as a rental property or home office
  15. Roth IRA qualified distributions
  16. Welfare payments
  17. Supplemental Security Income (SSI)
  18. Social security benefits are either nontaxable or partially taxable. Enter your social security benefits on the Social Security Benefits screen and we'll calculate how much, if any, of your benefits are taxable
  19. Cancellation of debt because of bankruptcy or insolvency. Enter your 1099-C or 1099-A on the Canceled Debt screen and we'll calculate how much, if any, of the canceled debt is taxable
  20. Veterans Administration disability benefits
  21. Pay-for-Performance Success Payments that reduce the principal balance of your home mortgage under the Home Affordable Modification Program
  22. Black lung benefits
  23. Cash rebates. For example, if you receive a cash rebate of $100 after you purchase a new washing machine
  24. Insurance proceeds for theft or damage to your property
  25. Utility rebates
  26. Long-term care insurance benefits
  27. Military allowances
  28. Peace Corps living allowances
  29. Reimbursement for medical care

Deluxe Edition

Includes All Free Features PLUS:

Audit Assist

Protect your taxes with Audit Assist!

Over 1.7 million taxpayers were audited last year... let us help. Our tax professionals will assist you if you are audited by the IRS. Get the peace of mind that comes from knowing you are covered.

Included with DELUXE...
Find out More!

Free Edition

FREE Federal, FREE e-file:

Our online application is designed to be simple and fast. Most returns can be completed within 30 minutes. No software to download. Use any computer that has an internet connection.

© 2002-2014 FreeTaxUSA, a TaxHawk, Inc. owned and operated website - Terms of Use