Interest payments
Gifts to charity (without regard to the dollar limit allowed for those claiming the standard deduction)
Casualty and theft losses in federally‐declared disaster areas
Gambling losses
Estate tax payments on income in respect of decedents
Generally, claim the standard deduction when it is greater than the total of your itemized deductions. However, it may save overall taxes to itemize, even when total deductions are less than the standard deduction, if you are subject to the alternative minimum tax (AMT). The reason: The standard deduction cannot be used to reduce income subject to the AMT, but certain itemized deductions can.
In the past there was an overall limit on itemized deductions for high‐income taxpayers. This limit does not apply for 2018 through 2025.
If a married couple files separate returns and one spouse itemizes deductions, the other must also itemize and cannot claim a standard deduction.
Impact of Deductions on Your Chances of Being Audited
Did you know that the IRS collects statistics from taxpayers to create profiles of average deductions? If you claim more than the average for your income range, the IRS's computer may select your return for further examination.
Tax experts agree that you should claim every deduction you are entitled to, even if your write‐offs exceed these statistical ranges. Just make sure to have the necessary proof of your eligibility and other records you are required to keep in case your return is examined.
How to Use This Book
This book is tied to Form 1040, U.S. Income Tax Return for Individuals. It can also be used for Form 1040‐SR, Income Tax Return for Seniors; a form specifically for seniors age 65 and older.
The chapters in this book are organized by subject matter so you can browse through them to find the subjects that apply to you or those in which you have an interest.
Each tax benefit is denoted by an icon to help you spot the type of benefit involved:
Exclusion
Above‐the‐line deduction
Itemized deduction (a deduction taken after figuring adjusted gross income)
Credit
Other benefit (e.g., a subtraction other than an above‐the‐line or itemized deduction that reduces income)
For each tax benefit you will find an explanation of what it is, starting with the maximum benefit or benefits you can claim if you meet all eligibility requirements. You'll learn the conditions or eligibility requirements for claiming or qualifying for the benefit. You'll find both planning tips to help you make the most of the benefit opportunity as well as pitfalls to help you avoid problems that can prevent your eligibility. You'll see where to claim the benefit (if reporting is required) on your tax return and what records you must retain to support your tax position.
You'll find dozens of examples to show you how other taxpayers have successfully taken advantage of the benefit. Over the years, taxpayers have been able to write off literally thousands of items; not every one is listed here because space does not allow it. And you'll learn what isn't allowed even though you might otherwise think so. There are references to free IRS publications on a variety of tax topics that you can download from the IRS website (www.irs.gov) or obtain free of charge by calling 800‐829‐1040.
You'll also see key dates for various actions, such as filing returns, contributing to retirement plans, and reporting foreign financial accounts to the U.S. Treasury. For example, the deadline for filing 2021 federal income tax returns is April 18, 2022.
In the appendices, you'll find a listing of items that can be adjusted each year to reflect cost‐of‐living changes so you can plan ahead, as well as a checklist of items that are tax free, and a checklist of items that are not deductible.
Throughout the book you will find alerts to possible changes to come. For a free update on tax developments, look for the Supplement to this book in February 2022, by going to www.jklasser.com, as well as to my website, www.BigIdeasForSmallBusiness.com.
CHAPTER 1 You and Your Family
11 Alimony
The nature of families is changing, and taxes have specific rules for them. Do the old clichés still ring true? Can two still live as cheaply as one? Are things really cheaper by the dozen? For tax purposes, there may be a penalty or bonus for being married versus single. And there are certain tax breaks for having a family.
This chapter explains family‐related tax benefits, such as tax credits related to your children and the consequences of marital dissolutions. Economic impact payments (EIPs) in 2021 to individuals and dependents are explained in Chapter 12. For more information on these topics, see IRS Publication 501, Dependents, Standard Deduction, and Filing Information; IRS Publication 503, Child and Dependent Care Expenses; IRS Publication 504, Divorced or Separated Individuals; IRS Publication 596, Earned Income Credit; and IRS Publication 972, Child Tax Credit.
