The zero bracket amount (ZBA) (formerly the standard deduction) was increased on Jan. 1, 1979 for all filers. The allowances are now:
$3,400 if you are married filing jointly, or a qualifying widow(er) with a dependent child.
$2,300 if you are filing as a single person or an unmarried head of household.
$1,700 if you are married filing separately.
For most people the decision on whether to itemize deductions or to take the ZBA is a relatively simple one. If the total of your deductions is greater than the amount given above for your filing status, you should itemize; it not, then use the ZBA.
If you itemize, you should be able to support every deduction with a receipt, cancelled check, or similar evidence. However, you should clain every deduction which you honestly believe qualifies even if you don't have proof of payment.
If your return is audited and a deduction questioned, allowance of an unsubstantiated deduction will be a matter of judgement on the part of the IRS examiner.
Both the tax tables and the tax rate schedules already allow for the proper ZBA for all categories of taxplayers. If you itemize, therefore, a special calculation is required when you work on Schedule A.
After adding all itemized deductions (on line 39 of Schedule A) you must subtract from the total the ZBA for your filing status. The resulting "excess" of itemized deductions is the number to be carried to line 33 of Form 1040 -- not your total deductions. Medical Expenses
As a general rule, medical expenses may be deducted only to the extent that they exceed three percent of adjusted gross income (line 13 of Form 1040). Expenses for drugs and medicines are further limited: You must first deduct one percent of adjusted gross income, then include the balance with other medical costs.
There is one exception. Half of your medical insurance premiums up to a maximum of $150 may be deducted (on line 1 of Schedule A) without reguard to the three percent limitation; the balance should then be entered on line 5 to be added with other medical expenses.
You may count your own medical expenses plus qualifying expenses paid by you on behalf of all dependents claimed on the return (including a dependent you claim as the result of a multiple support agreement.)
The net cost, after subtracting any insurance reimbursement, of all normal medical expenses such as payments to hospitals, doctors and nurses, is included.
You may claim the unreimbursed costs of acupuncture treatments; prosthetics such as false teeth, hearing aids and batteries, glasses and contact lenses; orthopedic shoes, crutches, and similar aids; purchase or rental of special equipment for the handicapped; and the cost of obtaining and maintaining a guide dog.
The cost of a legal abortion or a procedure for sterilization is also deductible; but illegal drugs or treatment which is against the law may not be included.
You may also claim premiums for medical insurance, including supplementary (medical) insurance under Medicare but not basic Medicare itself; and such specialized insurance as protection against loss of contact lenses.
You may deduct the cost of basic Medicare if you are 65 or older, do not qualify for social security, and subscribed to Medicare A voluntarily.
Transportation to obtain medical care is deductible, including ambulance hire; bus, taxi, train, or plane fares; and eight cents a mile for use of your car plus tolls and parking fees. Expenses of a parent accompanying a child or of a nurse accompanying a patient may also be claimed. Taxes
Major change for 1979 is the elimination of the deduction of gasoline taxes. Claim all of the following:
State and local income taxes actually paid or withheld from your wages during 1979 -- not the tax on 1979 income.
Do not subtract any refund received in 1979 on your 1978 or earlier state income tax. The amount of the refund is entered as income on line 11 of Form 1040 (if you itemized deductions for the year it was originally paid).
Personal property taxes.
Property taxes paid during 1979 on your home and on other real estate you own (but not the tax on property held for rental, which goes on Schedule E).
If the financial institution that holds your mortgage pays the real estate taxes, you may deduct only the amount paid on your behalf during 1979 -- not the monthly tax escrow you made.
General sales taxes -- the amount allowed in the IRS table on pages 40-41 of the instruction booklet, or the total amount actually paid if you kept a record.
If you use the tax table, add to adjusted gross income such nontaxable income as VA and social security benefits, the untaxed portion of capital gains, and tax-exempt bond interest.
In addition to the deduction authorized by the table, you may claim sales tax paid on purchase of a car, boat, or plane; a mobile home or trailer; or materials to build a home if paid directly by you or specified in the builder's contract.
The following are not deductible: excise taxes on liquor or cigarettes, utility bills, or transportation; hunting or fishing licenses; car tags; traffic fines; or penalties for underpayment of federal or state income tax. Interest Expenses
You may deduct interest paid on a mortgage on your home or other non-business property; a personal loan; a life insurance loan if paid in cash, but not if added to the loan; chrge accounts; a margin account at your broker (but not if the funds were used to buy tax-exempt securities); and interest, but not penalty charges, on late federal or state tax returns.
There is a ceiling on interest paid in connection with investments. If you have substantial interest expense related to investment property, see IRS Publication 545.
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 interest must be apportioned over the life of the loan.
If the interest applicable to each payment is not separately stated, then the total amount of interest must be divided evenly over the scheduled number of payments.
Interest paid on money borrowed to buy tax-exempt bonds or to purchase sngle-premium life insurance is not an authorized deduction.
The amount of any "points" paid by you in connectin with purchase of a home is normally considered interest if it was charged as additional compensation to the lender for use of the money.
If you sold your home, points you paid to induce a lender to provide financing to the buyer are not interest. However, the amount paid is a selling expense which may be subtracted from the proceeds of sale.
On the other hand, a prepayment penalty you, the seller, had to give to your mortgagee for early prepayment of the mortgage is deductible as interest in the year paid. Contributions to Charity
Contributions to qualifying organizations are deductible on Schedule A. A comprehensive list of the types of organizations which qualify is found on page 17 of the IRS instruction booklet, together with the major kinds of contributions which may not be claimed.
You may deduct both cash contributions and the fair market value of property given to qualifying organizations. But there are rules and restrictions; if the information in the instruction booklet is not sufficient to answer your questions, see IRS Publication 526, "Charitable Contributions."
Unreimbursed expenses you incurred while donating personal services to a qulaifying organization are deductible, including postage and phone calls, meals while contributing your services, and transportation costs (eight cents a mile if you use your car).
But you may not deduct the value of your contributed services even if you are normally 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.
You may deduct the cost of travel to attend a convention as an official delegate, including meals and lodging if away from home overnight; and the purchase and upkeep of required uniforms if they are of a specialized nature and not suitable for general use. Casualty Loss
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 to be at fault must be subtracted from the total loss. In addition, the first $100 of loss from each separate event must be subtracted.
If you could have recovered all or part of your loss through insurance coverage and elect not to file a claim, you may not deduct the amount that could have been recovered.
Example: You drive your car into a fire hydrant and have a $300 loss. Your collision coverage has a $200 deductible clause; but you choose not to asks for reimbursement of the remaining $100, and instead pay the entire loss yourself.
On your tax return you may claim the $200 equal to the amount of the deductible (less the $100 exclusion), but not the $100 the insuror would have paid if you had entered a claim.
You may deduct certain business expenses incurred in the course of your employment, if not reimbursed. These include entertainment expenses, professional societies and publications; union dues; small tools and supplies; cost and upkeep of specialized uniforms not suitable for wear away from work; and protective clothing such as hard hats and safety shoes.
Expenses related to job hunting may be deducted even if the search was unsuccessful. You may not claim on Schedule A the cost of a certifying examination or a license to practice a profession, but these may be included as business expenses on Schedule C if you were already in business when the costs were incurred.
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 to meet 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.
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. Business Use of Home
There are important restrictions on a deduction for use of a part of your home for business purposes. If you are self-employed, the space for which a deduction is claimed must meet these tests:
It must be used exclusively for business purposes; and
It must be either your principal place of business or regularly used by clients or customers.
This deduction may not be used to shelter other income from tax. The total amount of the deduction for expenses may not exceed income from business use (after subtracting the allocable portion of property taxes and mortgage interest, if you own your home).
If you sell home products, cosmetics, etc. and your home is the only business location from which you operate, the requirement for exclusive use is waived. You may deduct the allocated cost of storage areas regularly used for product inventory. Other Deductions
In general, you may claim any personal expense related to the production of taxable income. For example, include the cost of a safety deposit box if it held stocks or corporate bonds, or the deed to rental property, but not if it contained only personal papers or tax-free bonds.
Fee for investment advisory services and subscriptions to investment periodicials may be deducted even is you lost money on your investments. Include the cost of tax publications and a fee paid for preparation of your personal tax return.
You may also deduct fees paid to your bank or broker for the collection of taxable 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.
Legal fees associated with the production of taxable income, such as attempts to collect alimony or back wages, are deductible. Legal costs for a divorce proceeding are not deductible -- but a separately identified fee for financial counseling in connection with a divorce is.