Question

1. Go to the www.irs.gov website
2. Print out a Form 1040, Schedule A, and instructions for this Schedule, under "Forms and
Publications". Print the most recent Schedule and Instructions available.
3. Complete the Schedule A using the following facts:
June and Mike Baird are a married couple. Together their Adjusted Gross Income is $150,000.
For 20XX, they had the following items or occurrences related to itemized or possible itemized
deductions. All amounts are totals for the year:
a) Mortgage interest on primary residence $6,000. Mortgage amount $220,000.
b) Property taxes, primary residence, $4,000
c) Mortgage interest on vacation home, $4,000. Mortgage amount $160,000
d) Property tax on vacation home $4,000
e) Doctors bills paid out of pocket, not covered by insurance, $2,100
f) Prescription drugs paid out of pocket $800
g) Health insurance premiums paid through employers and deducted from their gross
income each week $2,400
h) Over the counter medicines to treat Mike's athlete's foot, $300
i) State income taxes withheld from paychecks $1,800
j) State income taxes paid with their state return last year $400
k) Total loss of car, not covered with comprehensive insurance so no insurance proceeds
received. Paid $9,000 for the car used, at date of total loss, value was $4,800
l) Wallet stolen at beach, containing $800
m) Tax return preparation fees paid $200
n) Investment counselor fees paid $400
o) Cash gifts to church $2,400
p) Gifts of old clothing to Goodwill and Salvation Army, all donated August 31st,
miscellaneous items listed by June as being worth $350
q) Gift of appreciated Sherwin-Williams Company stock to the Church. June had paid
$1500 for the stock three years ago, and its value at date of gift (October 1) was $3,200
r) Various gifts at the holiday season to needy individuals who use the church's soup
kitchen, $200

Why are the itemized deductions what they are? Why allow home mortgage interest, but not credit card interest? Why allow medical expense deductions, not school expense deductions? Why allow state and local income and property taxes, but not state and local sales taxes? Why, oh why, oh why? What are your thoughts? Any itemized deductions you think should not be included, or that are not deductible but be? Why? Can you make sense out of the present scheme and the six major groups (medical, local taxes, some interest, casualty, contributions, miscellaneous)?

Answer 1

Itemised deduction are eligible expenses that individual taxpayer can claim in federal incometax return and which decreases their taxable income. Most taxpayers are allowed a choice between itemised deduction and standard deduction.

Itemised deduction Schedule A
Particulars	Amt
Medical expenses
Doctors bill	2,100
Prescription drug paid out of Pocket	800
Health insurance	2,400
Over the counter Medices	300
	5,600
Taxes Paid
Property Tax on primary residence	4,000
Property Tax on Vacation home	4,000
State income taxes withheld from pay check	1,800
Tax return preparation fees	200
	10,000
Interest
Mortage interest on Primary residence	6,000
Mortage interest on Vacation home	4,000
	10,000
Charities
Cah gift to church	2,400
Gift of Sherwin-Williams stock	3,200
Gift of Old clothing	350
	5,950