Question

1.            Why, oh Why . . .

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)?

2.            AGI and "above the line" expenses vs. itemized deductions

The adjusted gross income number (AGI) is an important one. It is said it is always better for a deduction to be "for" AGI, i.e., deductible in arriving at AGI. These are also called "above the line" deductions. Why is it better? Can you name any specific benefits to being deductible above the AGI line?   Discuss one or two "above the line" expenses or adjustments to income from the front page of the 1040. Why policy reason do you think made these above the line deductions instead of as itemized deductions?

Answer 1

1....itemized deductions are the expenses that are allowed by the IRS to be deducted from the income of an individual provided these expenses are qualified to be deducted.

itemized dedcutions can help a person to list out the qualified expenses in their tax return.

The list of qualified expenses that can be deducted from the income of an individual can be found in schedule A of form 1040.

the expenses like interest on CC and tution fees are not deductible because an individual gets services or benefits from such charges but in case of medical bills no positve benefit is derived and it is the bad of person who gets ILL and have to spend money on medical treatments.

such non deductible expenses can be founded in schedule A of form 1040.

2....Above the line expenses are those expenses that are deducted from the income at predetermined fixed rate of deduction. Above the line expenses are deducted from the income and then Adjusted Gross income is arrived and then itemized deductions are deducted from AGI.

Above the line expenses are better than the itemized deductions because they can be claimed at fixed rate as compared to the itemized deductions whose admissibility can be changed by the IRS.

Some of the standard deductions are as below.

Child Tax credit- Child tax credit can be claimed for $2000 per qualifying child.

Adoption credit:- adoption credit can be claimed for $13810

Student loan interest:- this deduction can be claimed for max of $2500

Medical saving account:-individual that has self-individual coverage in MSA is $2,300