Deduction FAQ

Three kinds of deductions you need to learn about for the advanced exam:

Business deductions for self-employed taxpayers--take on Schedule C or C-EZ (these deductions are only available if self-employed)  must be "ordinary and necessary" for the business.  Commuting is NEVER a deductible expense!  List all expenses in a scratchpad attached to Schedule C-EZ line 2.  Don't forget to include mileage deduction.

Above-the-line deductions--take as "adjustment to income" in lines 23 to 36 (anyone can take these--don't need to have a business or itemize)
Most common example at our site is the student loan interest deduction, which is limited to $2,500 per taxpayer.  Other common example are educator expense for teachers who buy classroom supplies with their own money.

Itemized deductions--take on Schedule A (if you take itemized deductions, you have to give up the standard deduction)

    Who itemizes--usually only homeowners, because they can take mortgage interest and property taxes

    Other things you can deduct as itemized deductions:

            State income tax OR state & local sales tax

                If you took state income tax, then your refund could be reportable as income next year
                If you take state & local sales taxes, then you can use a formula to estimate (for small routine purchases)
                        Use Code B for Schenectady County as well as surrounding counties (e.g., Albany, Saratoga, Rensselaer, Montgomery, Schoharie)
                        Can also add sales tax on major purchases (e.g., car, boat)

     Medical deductions are very rare because taxpayer can only deduct amounts over 10% of AGI (or 7.5% of AGI if over 65.)