TAX TIP: You may claim medical expenses you paid for any person you could claim as a dependent except that he or she had taxable income during 1976 of $750 or more.
For example, you may be contributing more than half the support for a parent who is disqualified as your tax dependent because of having received $1,000 in taxable interest during the year. If part of your support payment is specifically for medical bills, you may include the amount of those bills with your other medical expense.
The net costs (after subtracting any insurance reimbursement) of all normal medical expenses such as hospitals, doctors, and nurses are includable. In addition, you may claim the unreimbursed costs of acupuncture treatments; prosthetics such as false teeth, hearing aids, and glasses; medicines and drugs; and purchase and rental of special equipment for the handicapped.
The cost of installing special equipment in your home on the advice of a physician is deductible only to the extent by which it exceeds any resulting increase in value of the home. However, the expense of maintenance and operation is deductible in full.
You also may claim premiums for medical insurance, including supplementary insurance under Medicare but not basic Medicare itself; and such specialized insurance as protection against loss of contact lenses.
Transportation to obtain medical care is deductible, including ambulance hire; bus, tax, train, or plane fare; or seven cents a mile for use of your car plus tolls and parking fees, a child or a nure accompanying a patient also may be claimed.
Claim as deductions on Schedule A all of the following:
State and local income taxes actually paid or withheld from your wages during 1976 (not the tax on 1976 income).
Personal property taxes.
Property taxes paid during 1976 on your home and on other real estate you may own (other than property held for rental).
General sales taxes - either the amount actually paid (if you kept a record) or the amount allowed in the IRS table for your income and family size.
TAX TIP: If you use the table, add to your adjusted gross income such nontaxable income as Social Security benefits and tax-exempt bond interest. And in addition to the table allowance, you may deduct sales tax paid on the purchase of a car, boat, plane, mobile home, or trailer.
Gasoline taxes - again, either the actual amount spent or the amount allowed by the IRS for the number of miles driven.
TAX TIP: The 1976 gasoline tax in the District was 10 cents a gallon - and there is no "10c" column in the IRS table. Use the figure from the "5c" column and multiply the amount by two.
You may not deduct excise taxes on liquor or cigarettes, utility bills, or transportation; hunting or fishing licenses; dog licenses; car tags; traffic fines: or penalties for underpayment of federal or state income tax.
You may deduct interest paid on your home mortgage, a personal loan, a life insurance loan if paid in cash (but not if added to the loan) charge accounts, a margin account at your broker (but not if funds were used to buy tax-exempt securities), and interest (but not penalty charges) on late federal or state tax returns.
TAX TIP: There is a new, lower ceiling on deductible investment interest. If you have substancial interest expense related to investment funds, see IRS Publication 545.
If you had installment accounts, you may deduct the actual interest paid during 1976. Finance charges on revolving charge accounts, bank credit cards, an doverdraft checking accounts are deductible in full as interest, but not service charges or special fees.
Prepaid or discounted interest may not be deducted when paid if the loan extends over more than the tax year For which the deduction is taken. Instead, the interets must be apportioned over the life of the loan; the deduction is limited to the interest actually chargeable for use of the money in 1976.
If the interest applicable to each payment is not stated separately, then the total interest must be divided evenly over the scheduled number of payments. Only the amount applicable to payments due in 1976 may be deducted.
Interest paid on money borrowed to buy tax-exempt (municipal) bonds or to purchase single-premium life insurance is not an authorized deduction.
Any "points" you pay in connection with purchase of a home is considered interest if it was additional compensation to the lender for the use of the money. The total amount of the interest deduction for points must be apportioned over the life of the mortgage unless three conditions are met:
The home is your principal residence.
The payment of points is an established business practice in your area.
The points charged are in line with the amounts normally charged in your area.
[TEXT OMITTED FROM SOURCE] points you paid to induce the lender to provide financing to the buyer is not interest. However, it may be counted as a selling expense to reduce the amount of gain on the sale.
On the other hand, a prepayment penalty you, the seller, had to give to the mortgagee for early repayment of the mortgage is deductible as interest in the year paid.
Contributions to qualifying organizations are deductible on Schedule A, but gifts or contributions to individuals, no matter how worthy, never are deductible. Generally, the following types of organizations qualify:
The United States, any state, city, or political subdivision if the contribution is made for public purposes.
Dues or donations to a church, synagogue, or similar religious institution, but not tuition for your child at a parochial school.
A community chest or united fund, the various nonprofit health foundations, the Red Cross, Salvation Army, USO, and similar service organizations, scouting and other boys' or girls' clubs.
Contributions, but not dues, to veterans' associations and their auxiliaries, and to domestic fraternal societies if the money is to be used for charitable, scientific, educational, or literary purposes.
You may deduct cash contributions and the fair market value of property given to qualifying organizations. But there are rules and restrictions - see IRS Publication 561, "Valuation of Donated Property."
TAX TIP: If you own property which is now worth more than it cost, contribute the property itself. You will have a charitable deduction for the fair market value without having to report any capital gain. But if the property has depreciated in value, sell it and donate the cash. You then will be able to claim a capital loss which would not be available if you contributed the property directly.
Unreimbursed expenses you incurred in rendering personal services (without pay) to a qualifying organization are deductible.
This includes such things as postage and phone calls, meals while contributing your services, transportation (at seven cents a mile plus tolls and parking fees if you use your car), travel to attend a convention as an official delegate (plus meals and lodging if away from home overnight), and the purchase and upkeep of required uniforms if they are of a specialized nature and have no general use.
You may not deduct the value of your contributed services even if you are a professional and normally are paid for the same type of work. Similarly, the value of temporary use of your property, even if it is normally rented for income, is not deductible.
The destruction of or damage to nonbusiness property resulting from a sudden, unexpected, or unusual event may provide a tax deduction. Gradual deterioration such as a termite infestation does not qualify. The event must be in the nature of a hurricane, tornado, flood, fire, theft, vandalism, or accident.
Only the unreimbursed loss is deductible. The amount of any recovery from insurance or from an individual found at fault must be subtracted from the total loss. In addition, the first $100 of loss from each separate event must be subtracted.
Periodic alimony or separate maintenance payments to your former spouse required by a decree of divorce or separate maintenance, a decree of support, or a written separation agreement are allowable deductions.
Payments specifically designated as support for a minor child are not deductable even if paid to your former spouse rather than directly to the child. (But such payments may be a factor in determining who may take the dependency exemption for the child.)
You may deduct certain business expenses incurred in the course of your employment, if not reimbursed.
These include entertainment expenses, business gifts (maximum $25 per recipient per year), membership in professional societies, subscriptions to professional journals, union dues, the cost of small tools and supplies, and expenses for telephone, stationery and postage.
You may deduct expenses related to job-hunting even if the search was unsuccessful. A professional may not claim on Schedule A the cost of a certifying examination or a license to practice, but these may properly be included as busines expenses on Schedule C if you were in business when the cost was incurred.
The new tax law imposes restrictions on the deductibility of expenses associated with attending conferences and conventions outside the United States. If you are eligible for such a deduction, consult IRS Publication 463.
The cost of purchase and upkeep of uniforms, special clothing such as safety shoes, and special equipment may be deducted if they rae required for your work, not provided by your employer, and not generally usable when away from the job.
Military people on active duty may not deduct the cost of regular uniforms, but may claim the cost of insignia, ribbons, etc., and of work clothing which may not be worn off duty. Reservists and guardsmen not on active duty may deduct the unreimbursed cost of all uniforms.
Unreimbursed education expenses (other than transportation, which should be claimed as an adjustment to income) are deductible on Schedule A. The education must have been taken either to meet the requirements of your employer or of the law to keep your present job, or to maintain or improve your skills in that job.
Education to qualify for a job initially, to train for a new profession, or for your own pleasure does not qualify. But the possibility that improved skills may lead to a pay raise or promotion does not disqualify the deduction.
TAX TIP: Reimbursement of education expenses received from the Veterans Administration should not be deducted from allowable expenses, nor should such payments be reported as income on your return.
The new tax law establishes severe restrictions on a deduction for use of a part of your home for business purposes. Even if you are self-employed, the space for which a deduction is claimed must meet these qualifications:
It must be used exclusively for business purposes.
It must be either your principal place of business or regularly used by clients or customers in the normal course of business.
If you are an employee rather than self-employed, there is a third requrement: Use of space in your home must be for the convenience of your employer, not your own.
Even if you qualify for the deduction, there is a dollar limit. The total amount of the deduction for expenses may not exceed income from the business use after subtracting the allocable portion of property taxes and mortgage interest (if you own your home). This deduction may not be used to shelter other income from taxation.
TAX TIP: If you sell home products, cosmetics, etc., and your home is the only business location from which you operate, you are execpt from the first two requirements. You may deduct the allocated cost of storage areas regularly used for product inventory.
You may deduct cash contributions made to a candidate for any elective public office, to a committee organized to promote the candidacy of an individual, or to the local, state, or national committee of a national political party.
Political contributions may be claimed either as a miscellaneous deduction on Schedule A or as a tax credit on Form 1040. (Of course you may not claim both.) If you do not itemize, then the tax credit is the only way to go.
If you do itemize, your choice of method will depend on the size of the contribution and your marginal tax bracket. You should make a rough calculation of your tax both ways to determine which one gives you the larger tax saving.
In general, you may claim any expense reasonably related to the production of taxable income. For example, include the cost of a safety deposit box if it held stocks or corporate bonds, but not if it contained only personal papers or tax-free bonds.
Fees for investment advisory services and subscriptions to investment periodicals may be deducted even if you lost money on your investments.
You also may deduct fees paid for preparation of your personal tax returns, fees to your bank or broker for the collection of interest on notes or coupon bonds (but not brokerage commissions, which should be added to the cost of securities bought or deducted from the proceeds of securities sold), and legal fees associated with the production of taxable income such as attempts to collect alimony or back wages.